Regional Cooperation for Sustainable Energy in Asia

SESSION CO 73 Regional cooperation for sustainable energy rd MMISSION 73rd COMMISSION SESSION Regional cooperation for sustainable energy

REGIONAL COOPERATION REGIONAL COOPERATION FOR SUSTAINABLE ENERGY IN ASIA AND THE PACIFIC In the highly diverse Asia-Pacific region, energy resources vary among countries, however in most cases are not managed efficiently. Some countries are dependent on fuel imports which create substantial macroeconomic FOR SUSTAINABLE ENERGY complications with fluctuating oil prices. While energy shortages and structural issues in developing countries impede the ability of countries to expand access to energy, thus hindering broader national development objectives. Growing air pollution from fuel emissions have risen unabatedly as most countries are heavily IN ASIA AND THE PACIFIC dependent on fossil fuel, in particular coal. Persistent disruptions in supply of electricity and its costs are now hurting the competitiveness of productive sectors. Along with ensuring supply of power generation, many countries face high transmission and distributions costs as well as leakages that need to be simultaneously addressed.

The main purpose of the theme study is to call on policymakers in Asia and the Pacific for urgent actions to transform national energy systems to achieve the Sustainable Development Goals (SDG), particularly Goal 7. The energy system transformation is the only way to address the sizeable energy deficit which impedes progress on energy access, gaps between commitments under the 2030 Agenda for Sustainable Development and the Paris Agreement on climate change and lack of coherent energy strategic and policy frameworks.

The theme study provides member countries with a menu of options on legislative, regulatory, and programmatic initiatives that policymakers may consider as they develop strategies for an economically viable, socially acceptable, and environmentally sound energy transition.

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Chief Conference and Documentation Services Section Division of Administration Economic and Social Commission for Asia and the Pacific (ESCAP) United Nations Building, Rajadamnern Nok Avenue Bangkok 10200, Thailand Tel: 66 2 288-2109 Fax: 66 2 288-3018 Email: [email protected] REGIONAL COOPERATION FOR SUSTAINABLE ENERGY IN ASIA AND THE PACIFIC REGIONAL COOPERATION FOR SUSTAINABLE ENERGY IN ASIA AND THE PACIFIC

Shamshad Akhtar Executive Secretary

Kaveh Zahedi Deputy Executive Secretary

Hongpeng Liu Director, a.i., Energy Division

Photo credits: Cover: Shutterstock.com Chapter 1: Sura Nualpradid/ Shutterstock.com Chapter 2: ESCAP Photos/ Shutterstock.com Chapter 3: Scott Hales/Shutterstock.com Chapter 4: Vitmark/Shutterstock.com

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FOREWORD

The transition to sustainable energy is a cornerstone of the 2030 Agenda for Sustainable Development in Asia and the Pacific. Energy is a common thread that connects multiple areas of development for countries across the region. For countries at every stage of development, energy assumes a critical importance. Ready access to affordable energy is essential for both economic growth and social development. Energy powers industry, moves people and goods through the region and underpins key sectors such as healthcare, education and ICT. Our future prosperity and well-being hinges on the capacity to supply an increasing amount of energy that is affordable, accessible and reliable. As important as these objectives are, ensuring the sustainability of our energy supply is a long term, fundamental and overarching requirement. The historical reliance of the region on fossil fuels and the inefficient use of energy cannot continue. These have ledto unacceptable impacts through climate change, air pollution and local environmental degradation. This requires an energy transition — a shift to low carbon, nonpolluting energy generation and increased energy efficiency that brings the benefits of modern energy to all. Global aspirations for an energy transition are reflected in the Sustainable Development Goals, which through Goal 7, to achieve sustainable energy for all by 2030. The Paris Agreement on climate change also requires a transformation to low carbon energy. As energy accounts for two thirds of the greenhouse gas emissions in Asia and the Pacific, an energy transition in the region must be at the core of its response to climate change. While there is consensus among countries in the region on the need to transition to a sustainable energy system, the diversity of circumstances they face means there is no single pathway or timeframe to achieve this. Asia-Pacific countries are at different levels of development and have uneven resource endowments, with differing geography and technological capacities. There are multiple policy options for accelerating progress towards a sustainable energy future, for which each country must calibrate its own response. Many countries are well advanced along the pathway to a sustainable energy future, while others have only started. Regional cooperation to mobilize capacities, knowledge, technology and investment, as well as to establish regional markets is an essential part of the sustainable energy transition. In response to these opportunities, and to add to the knowledge base and catalyse action, member States of ESCAP requested the secretariat to develop this 2017 theme study “Regional Cooperation for Sustainable Energy in Asia and the Pacific”. This publication takes stock of the challenges and progress made across the region in transitioning to sustainable energy. It identifies some of the strategies that the region’s policymakers can consider that balance the economic, social and environmental dimensions of energy and provides a series of recommendations on how to enact a regional cooperation framework for sustainable energy. It is clear that the transition to sustainable energy in the Asia-Pacific region has already begun. Region-wide, investment in renewables has overtaken investment in fossil fuels. More advanced energy efficiency is playing a role in decoupling economic growth from energy use in many countries. Cross-border energy connectivity links are being installed and many others are under consideration. Energy innovations are proceeding at a rapid pace and are unleashing opportunities for the disruption of traditional energy supply models. Clean technologies, such as solar, are providing low cost electricity at the household, district and industrial scales. Storage technologies, smart grids and electric vehicles are iv REGIONAL COOPERATION FOR SUSTAINABLE ENERGY IN ASIA AND THE PACIFIC

poised to transform the electricity supply and transport sectors. Adapting to this new reality and harnessing these trends to support the energy transition requires innovative policies, systems thinking, new sources of finance and advanced business models. ESCAP, as the regional arm of the United Nations in the Asia-Pacific region, can play a role in meeting the aspirations of its member States to develop their own energy transition pathways. Through its newly formed Committee on Energy and Energy Division, ESCAP is now equipped to work with its member States and other stakeholders to develop regional approaches for sustainable energy, including promoting energy connectivity. It is hoped this theme study will provide a practical contribution to deliberations at the seventy-third session of the Commission on the future path for sustainable energy in the region.

Shamshad Akhtar Under-Secretary-General of the United Nations and Executive Secretary, United Nations Economic and Social Commission for Asia and the Pacific REGIONAL COOPERATION FOR SUSTAINABLE ENERGY IN ASIA AND THE PACIFIC v

EXECUTIVE SUMMARY

Countries in the Asia-Pacific region face multiple energy-related challenges, which are driving them to transform their energy systems. First, there is a need to increase energy supply by some 60 per cent by 2035 to meet the growing demand associated with the rapid urbanization, industrialization and economic growth taking place. Second, achieving national energy security is required to protect economies from price fluctuations and market instability and to reduce dependence on imported energy. Third, energy access needs to be provided to over 420 million people who lack access to electricity and to an additional 2.1 billion people who rely on traditional biomass for cooking and heating. Finally, a shift to the use of low-carbon energy resources and diversification of the energy mix are required to enhance energy security, reduce environmental impacts, especially air pollution, and meet global commitments pertaining to climate change. Addressing these energy challenges is an integral part of the implementation of the 2030 Agenda for Sustainable Development, including ensuring access to affordable, reliable, sustainable, and modern energy for all. Tackling these multiple energy-related challenges necessitates a transition in the way energy is generated, transmitted and consumed. Major components of this transition are enhanced energy efficiency, increased renewable energy in the energy mix, improved energy access andbetter connectivity across the region. While the energy sector in many countries is slowly being transformed, the pace of the change needs to be accelerated. The present publication analyses a number of considerable challenges in the Asia-Pacific region and its efforts to accelerate the energy transition to achieve Sustainable Development Goal 7 (SDG 7). Improving energy efficiency Globally, the Asia-Pacific region is the most energy-intensive region, despite the decline in energy intensity from 222kgoe/1000$ GDP in 1990 to 145kgoe/1000$ GDP in 2014. Consequently, comprehensive strategies to improve energy efficiency need to be developed. Improving energy efficiency at a greatly accelerated pace requires Asia-Pacific countries to overcome market barriers that prevent consumers and companies from purchasing the most efficient equipment and appliances. Among these barriers are market failures and imperfections; consumer attention to first costs rather than life-cycle costs; attitudes, behaviors and lack of information; andfiscal policies that discourage gains in energy productivity or reward inefficient energy consumption. These barriers often require government interventions, such as making labelling mandatory, creating national and sector-wide energy efficiency targets and establishing legal frameworks necessary to implement and enforce mandates. A legal framework and mandatory programmes with strong enforcement mechanisms are critical elements of the energy efficiency policies required to sustaining an energy transition. Increasing renewable energy Countries across the region have already committed themselves to increasing their share of renewable energy. Forty-five ESCAP member States currently have national policies that require renewable energy targets, up from only 17 member States in 2010. However, the share of modern renewable energy sources is still relatively small in the region because of prevailing barriers that hinder deployment. These can be broadly classified as regulatory and policy uncertainty, institutional and administrative barriers, market barriers, financial barriers, infrastructure barriers, a lack of skilled personnel, public acceptance and environmental issues. While financing continues to be a major challenge for countries, some progress is being made in this area. Investment and the installation of renewable energy reached a new high in 2015, with global investment rising 5 per cent to $285.9 billion, of which $160.6 billion was made in the Asia- Pacific region. A major challenge for the region, in particular for developing countries, isto vi REGIONAL COOPERATION FOR SUSTAINABLE ENERGY IN ASIA AND THE PACIFIC provide a stable and long-term policy to facilitate the energy transition. Governments can help accelerate deployment by giving priority to clean-energy technologies in procurement processes and/or by establishing energy efficiency and renewable portfolio standards for energy providers. Improving energy access The Asia-Pacific region has experienced rapid growth in access to electricity. Despite significant population growth, as of 2014, the average total electrification rate in the region reached 90.3 per cent, up from 70.2 per centin 1990. Nevertheless, 421.4 million people in the Asia-Pacific region still do not have access to electricity, exacerbating the inequalities among the different segments of the population. Compared to the issue of electricity access, access to clean fuels and technology for cooking has not received adequate attention. Overall, there has been negligible progress; as of 2014, the total population without access to clean fuels and technology accounted for almost 2.1 billion people, or nearly half of the population of the Asia-Pacific region. Although governments, facing increased population growth, have managed to stabilized the number of people without access to clean fuels and technology, the lack of overall progress in this area has a significant impact on the health and well-being of people across the region, with women in particular being adversely affected. Various policy, institutional, and financial barriers continue to hamper efforts to accelerate progress towards achieving universal energy access. Weak institutional mechanisms and capacity within governments to facilitate the necessary partnerships at the national, local and, community levels often impede progress. It is estimated that from $1 billion to 52 billion per year will be required globally, depending on the level, or tier, of energy access governments aspire to in their national electrification strategies. Increased investment in energy access requires strong coordinated support of governments to facilitate greater access to low-cost financing, while also addressing the commercial viability of developing a strong pipeline of bankable projects. Governments can help in this endeavour by making the sector more attractive to investors by developing a comprehensive risk management package, which includes ensuring a predictable and enabling policy environment, innovative financing mechanisms and strong stakeholder partnerships. Increasing energy connectivity A key element for the success of the energy transition in the Asia-Pacific region is the degree in which countries capitalize on opportunities related to energy connectivity and trade. Energy connectivity, particularly the interconnection of grids and gas pipelines across borders, offers multiple benefits, including greater access to energy and increased trade and the provision of market access for low-carbon energy. However, transboundary energy trade requires a high-level political commitment, an investment in infrastructure, the removal of institutional barriers and the normalization and harmonization of standards and regulations. Developing clean energy corridors necessitates an assessment of the availability and potential for renewable energy power generation and transmission. Energy networks are capital- intensive, with large sunk costs, presenting major challenges in financing and maintenance, especially when subject to different legal and regulatory regimes. Ongoing successful energy connectivity initiatives at the subregional level are encouraging, but they need to be replicated more widely and implemented at a more rapid rate. To expedite project implementation, project lead-times must be shortened by putting in place a well-functioning intergovernmental mechanism. Over the next few decades, actions must be directed towards creating physical energy networks, increasing institutional connectivity and, most importantly, building trust between countries. Asia-Pacific regional energy cooperation, therefore, requires a firm commitment to energy transition and regional cooperation to achieve energy and sustainable development aspirations. Policies to promote the energy transition This publication provides several options for governance that policymakers in the Asia-Pacific region can consider as they develop strategies for developing economic and for population growth from greenhouse gas emissions and ending energy poverty, including legislative, regulatory and programmatic initiatives, partnerships and connectivity. Governments have a key role in the transition and can affect investment flows by facilitating additional revenue streams from investments; reducing risk; extending tax and other incentives to investors; and providing regulatory stability for the business and technology choices of investors. An effective pathway to energy transition requires a mix of incentives for clean energy — energy market reform, carbon emissions pricing and fossil fuel subsidy reform, — as well as effective methods for addressing the social aspects arising from diverging energy tariffs between urban and rural areas and from fossil fuel subsidy reform. While governments will play key roles in the energy transition, greater coordination is needed to plan and implement the transition. Governments need to strengthen coordination among ministries and establish an enabling environment REGIONAL COOPERATION FOR SUSTAINABLE ENERGY IN ASIA AND THE PACIFIC vii for the private sector. In addition, Policies and strategies based on evidence-based research need to be developed together with research institutions and innovative national and international organizations. Financial policies that improve the availability and affordability of financial resources, ranging from providing public finance to incentivizing private sector financing, also need to be formulated. Among the components that could be associated with these policies are banking regulations; public financing schemes; carbon financing; technical assistance; capacity-building in the financial sector; and innovative financial instruments. Furthermore, the dispersed, diverse, and small-scale nature of many investments makes it difficult to package them to investors. Governments need to appreciate the barriers facing such investments and assist in developing suitable vehicles to finance projects in a way that aligns with their varying sizes, operational models, and investment objectives (green securitization is one example). Governments can also provide supportive legal and regulatory environments to incentivize lending by banks in these sectors. Traditionally, science, technology, and innovation policy in the region has focused on stimulating economic competitiveness and growth. Technological change for sustainable energy, particularly in developing countries, is not only about frontier innovation, but, more importantly, about adapting existing energy technologies to local contexts. The capability of local firms and enterprises to access technological know-how is fundamental in shaping their ability to provide products and services essential for achieving sustainable energy. New architecture for regional energy governance This publication emphasizes the importance of creating a new architecture for regional energy governance. As the first important step in this direction, ESCAP member States established the intergovernmental Committee on Energy. The next step could be the development of a regional cooperation framework covering a number of components including: (a) Developing regional energy system transition pathways that are consistent with SDG 7; (b) Strengthening policy to align energy system transition and regional connectivity agendas, and promoting power grid connectivity; (c) Developing an Asia-Pacific energy charter that lays out a regional legislative framework to provide private and institutional investor confidence in the long-term commitment of governments; (d) Promoting public-private dialogues to encourage innovative financing and investment partnerships, and attracting private investment in sustainable energy; (e) Strengthening government capacity to establish policies, strategies, and programmes to encourage the energy transition and promote regional cooperation. ESCAP can play a role in the promotion of the new architecture for regional energy governance by helping to build energy bridges, harnessing research and project development, and promoting legal and regulatory agreements for energy connectivity. The second Asian and Pacific Energy Forum, to be held in 2018, will give different stakeholders representing governments, private sector and civil society the opportunity to work together to provide the vision for the energy transition in the region. ESCAP can support such a transformative partnership. Through the Asian and Pacific Energy Forum, an Asia-Pacific energy cooperation framework could be developed to affirm thelong- term commitment of member States and to provide confidence to private investors, civil society, and financial institutions by developing enabling policies and instruments for energy transition. viii REGIONAL COOPERATION FOR SUSTAINABLE ENERGY IN ASIA AND THE PACIFIC

ACKNOWLEDGMENTS

The preparation of this publication was led by the Energy Division of the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) under the overall direction and guidance of Dr. Shamshad Akhtar, Under-Secretary-General of the United Nations and Executive Secretary of ESCAP. Kaveh Zahedi, Deputy Executive Secretary provided guidance and direction to the core team who developed the report, which included Hongpeng Liu, Director, a.i. Energy Division; Kohji Iwakami; and Sergey Tulinov. The main contributors from the Energy Division include: Erick Ratajczak, Igor Litvinyuk, Martin Niemetz, and Sara Demartini. Technical input was provided by Kira Lamont, Rudo Matsheza and ESCAP intern Peng Pei. Laura Altiger, of the Environment and Development Division, provided useful inputs. Consultants Laurence Delina and Romeo Pacudan provided substantive contribution to the theme study. Expert guidance and input was provided through an expert group meeting, held in Bangkok on 7 and 8 March 2017. Participants of the meeting: included: Ajay Kumar Saxena, Director and Senior Fellow, The Energy and Resources Institute, India; Anna Andreevna Lobanova, Researcher, Analytical Center for the Government of the Russian Federation; Beni Suryadi, Programme Officer, ASEAN Centre for Energy; Matthew Wittenstein, Energy Analyst – Electricity Markets, International Energy Agency; Milou Beerepoot, Regional Technical Specialist Energy, United Nations Development Programme; Nabih Fakhri Matussin Muhammad, Researcher, Brunei National Energy Research Institute; and Xunpeng Shi, Principal Research Fellow, Australia-China Relations Institute. Substantive review and input was provided by William Becker of the Clean Energy Solutions Center, under overall coordination from Erik Ness of the National Renewable Energy Laboratory (NREL). The study was edited by Kyra Epstein and Alan Cooper. Nawaporn Wanichkorn coordinated layout design, proof reading and printing. Layout and printing were provided by Clung Wicha Press Co., Ltd. Ricardo Dunn, Katie Elles, Martin Dessart, Kavita Sukanandan, and Chavalit Boonthanom of the ESCAP Strategic Publications, Communications, and Advocacy Section coordinated the launch and dissemination of the report.

REGIONAL COOPERATION FOR SUSTAINABLE ENERGY IN ASIA AND THE PACIFIC ix

CONTENTS

Foreword ...... iii Executive summary ...... v Acknowledgments ...... viii Explanatory notes ...... xii Acronyms ...... xiii

INTRODUCTION ...... 1

CHAPTER ENERGY TRANSITION IS VITAL TO SUSTAINABLE 1 DEVELOPMENT 1 Driving forces for energy transition ...... 6 2 The need for rapid action ...... 11 3 Conclusion ...... 12

CHAPTER PROGRESS AND CHALLENGES TOWARDS ACHIEVING 2 SUSTAINABLE DEVELOPMENT GOAL 7 1. Ensure universal access to affordable, reliable and modern energy services (target 7.1) ...... 16 2. Increase substantially the share of renewable energy in the global energy mix (target 7.2) ...... 19 3. Double the global rate of improvement in energy efficiency (target 7.3) ...... 24 4. Data collection in tracking progress towards SDG 7 ...... 28 5. Conclusion ...... 28

CHAPTER ENERGY TRANSITION STRATEGIES FOR 3 ASIA AND THE PACIFIC 1. Transition scenarios ...... 32 2. Strategies to improve energy efficiency ...... 33 3. Strategies for renewable energy deployment ...... 36 4. Distributed and decentralized energy generation ...... 41 5. Promoting deployment in end-use sectors ...... 44 6. Pricing energy-based emissions ...... 45 7. Mobilizing energy finance ...... 48 8 Conclusion ...... 50

x REGIONAL COOPERATION FOR SUSTAINABLE ENERGY IN ASIA AND THE PACIFIC

CONTENTS (continued)

CHAPTER REGIONAL COOPERATION 4 FOR SUSTAINABLE ENERGY 1 Review of regional cooperation initiatives ...... 54 2 A pathway toward a common energy agenda ...... 58 3 The benefits of energy connectivity through enhanced regional cooperation ...... 59 4 A common vision ...... 59 5 Role of a regional institutional mechanism ...... 62 6 Regional cooperation for sustainable energy ...... 62 7 Recommendations for regional cooperation for sustainable energy: new architecture for regional energy governance ...... 63 8 The role of ESCAP in facilitating regional cooperation for sustainable energy ...... 64

References ...... 66

BOXES

Box 1.1. China’s 13th Five-Year Plan for Energy Development ...... 7 Box 1.2. “Thailand 4.0” ...... 7 Box 1.3. Pacific aspirations ...... 10 Box 1.4. Transition from kerosene stoves to liquefied petroleum gas in Indonesia ...... 11 Box 1.5. The German “Energiewende” ...... 11 Box 1.6. Ontario’s transition away from coal-fired power generation ...... 12 Box 2.1. The Multi-Tier Framework For Measuring Energy Access ...... 16 Box 2.2. Energy transition in China ...... 21 Box 2.3. India reverse auctioning for solar and wind farm ...... 22 Box 2.4. Renewable energy policy of Malaysia ...... 24 Box 3.1. How to establish or strengthen energy efficiency strategies ...... 34 Box 3.2. China’s 1,000 to 10,000 Energy-Consuming Enterprises Programme ...... 35 Box 3.3. The Australian Energy Efficiency Opportunity Programme ...... 35 Box 3.4. Mandatory energy audit and energy managers in India ...... 36 Box 3.5. India’s Market-based Perform, Achieve, and Trade Scheme ...... 36 Box 3.6. Smart grid road mapping ...... 40 Box 3.7. China’s Smart Grid Road Map ...... 40 Box 3.8. Business models in the Republic of Korea ...... 41 Box 3.9. Business models for micropower in South Asia ...... 43

REGIONAL COOPERATION FOR SUSTAINABLE ENERGY IN ASIA AND THE PACIFIC xi

CONTENTS (continued)

FIGURES

Figure 2.1. Progress made: proportion of population with access to electricity, 1990 and 2014 ...... 17 Figure 2.2. Percentage of rural population with access to electricity by ESCAP subregion, 1990-2014 ...... 17 Figure 2.3. Proportion of population with primary reliance on clean fuels and technology, 2000 and 2014 18 Figure 2.4. Mix of final renewables production by source, exajoules, and shares of total renewables and modern renewables in TFEC, 1990-2014 ...... 20 Figure 2.5. Electricity production from solar, wind, and tide energy by ESCAP subregion, 1990-2014 ...... 21 Figure 2.6 Asia-Pacific subregions’ experiences with declining energy intensities, 1990-2014...... 25 Figure 2.7. Energy intensity measured in terms of primary energy and GDP (2011 $ PPP) ...... 25 Figure 4.1. Regional cooperation initiatives ...... 54

TABLES

Table 1.1. Estimated new permanent, full-time construction and operation jobs projected due to converting to wind, water, and sunlight systems ...... 8 Table 1.2. Air pollution PM2.5 plus ozone premature mortalities avoided by 2050, by country, and corresponding mean avoided costs (in 2013 US$) arising from all air pollution related damage (mortalities, morbidities, and non-air pollution effects) ...... 9 Table 2.1. Renewable energy targets in selected Asia-Pacific countries ...... 23 Table 2.2. Energy efficiency targets ...... 27 Table 3.1. Total primary demand scenarios (in Mtoe) ...... 32 Table 3.2. Share of renewable energy in total primary energy demand scenarios ...... 33 Table 3.3. Policy support for renewable energy in Asia-Pacific countries ...... 38 Table 4.1. Typical integration levels by key targets for energy cooperation ...... 60 xii REGIONAL COOPERATION FOR SUSTAINABLE ENERGY IN ASIA AND THE PACIFIC

EXPLANATORY NOTES

Analyses presented in the publication Regional Cooperation for Sustainable Energy in Asia and the Pacific are based on data and information available up to the end of March 2017. Groupings of countries and territories/areas referred to in the publication are defined as follows: • ESCAP region: Afghanistan; American Samoa; Armenia; Australia; Azerbaijan; Bangladesh; Bhutan; Brunei Darussalam; Cambodia; China; Cook Islands; Democratic People’s Republic of Korea; Fiji; French Polynesia; Georgia; Guam; Hong Kong, China; India; Indonesia; Iran (Islamic Republic of); Japan; Kazakhstan; Kiribati; Kyrgyzstan; Lao People’s Democratic Republic; Macao, China; Malaysia; Maldives; Marshall Islands; Micronesia (Federated States of); Mongolia; Myanmar; Nauru; Nepal; New Caledonia; New Zealand; Niue; Northern Marina Islands; Pakistan; Palau; Papua New Guinea; Philippines; Republic of Korea; Russian Federation; Samoa; Singapore; Solomon Islands; Sri Lanka; Tajikistan; Thailand; Timor-Leste; Tonga; Turkey; Turkmenistan; Tuvalu; Uzbekistan; Vanuatu; and Viet Nam • Developing ESCAP region: ESCAP region excluding Australia; Japan; and New Zealand • Developed ESCAP region: Australia; Japan; and New Zealand • Least developed countries: Afghanistan; Bangladesh; Bhutan; Cambodia; Kiribati; Lao People’s Democratic Republic; Myanmar; Nepal; Solomon Islands; Timor-Leste; Tuvalu; and Vanuatu • Landlocked developing countries: Afghanistan; Armenia; Azerbaijan; Bhutan; Kazakhstan; Kyrgyzstan; Lao People’s Democratic Republic; Mongolia; Nepal; Tajikistan; Turkmenistan; and Uzbekistan • Small island developing States: Cook Islands; Fiji; Kiribati; Maldives; Marshall Islands; Micronesia (Federated States of); Nauru; Niue; Palau; Papua New Guinea; Samoa; Solomon Islands; Timor-Leste; Tonga; Tuvalu; and Vanuatu • East and North-East Asia: China; Democratic People’s Republic of Korea; Hong Kong, China; Japan; Macao, China; Mongolia; and the Republic of Korea • North and Central Asia: Armenia; Azerbaijan; Georgia; Kazakhstan; Kyrgyzstan; Russian Federation; Tajikistan; Turkmenistan; and Uzbekistan • Pacific: American Samoa; Australia; Cook Islands; Fiji; French Polynesia; Guam; Kiribati; Marshall Islands; Micronesia (Federated States of); Nauru; New Caledonia; New Zealand; Niue; Northern Marina Islands; Palau; Papua New Guinea; Samoa; Solomon Islands; Tonga; Tuvalu; and Vanuatu • Pacific island developing economies: All those listed above under “Pacific” except for Australia and New Zealand • South and South-West Asia: Afghanistan; Bangladesh; Bhutan; India; Iran (Islamic Republic of); Maldives; Nepal; Pakistan; Sri Lanka; and Turkey • South-East Asia: Brunei Darussalam; Cambodia; Indonesia; Lao People’s Democratic Republic; Malaysia; Myanmar; Philippines; Singapore; Thailand; Timor-Leste; and Viet Nam Bibliographical and other references have, wherever possible, been verified. The United Nations bears no responsibility for the availability or functioning of URLs. Mention of firm names and commercial products does not imply an endorsement from the United Nations. Reference to dollars ($) are to United States dollars unless otherwise stated. Reference to “tons” indicates metric tons. The term “billion” signifies a thousand million. The term “trillion” signifies a million million. The publication Regional Cooperation for Sustainable Energy in Asia and the Pacific and supporting online documents are the sole responsibility of the ESCAP secretariat. Any opinions or estimates reflected herein do not necessarily reflect the opinions or views of members or associate members of the Economic and Social Commission for Asia and the Pacific. REGIONAL COOPERATION FOR SUSTAINABLE ENERGY IN ASIA AND THE PACIFIC xiii

ACRONYMS

AAGR Average annual growth rates ADB Asian Development Bank APAEC ASEAN Plan of Action for Energy Cooperation APEC Asia Pacific Economic Cooperation APEF Asian and Pacific Energy Forum APERC Asia Pacific Energy Research Centre ASEAN Association of Southeast Asian Nations BIMSTEC Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation CAREC Central Asia Regional Economic Cooperation CFL compact fluorescent lamp EAPN Energy Access Practitioner Network ESCAP Economic and Social Commission for Asia and the Pacific ERIA Economic Research Institute for ASEAN and East Asia FEEED Framework for Energy Efficient Economic Development FiT feed-in-tariffs FS-UNEP Frankfurt School UNEP Collaborating Centre GDP gross domestic product GEIDCO Global Energy Interconnection Development and Cooperation Organization GMS Greater Mekong Subregion GW gigawatt IEA International Energy Agency IFC International Finance Corporation IMF International Monetary Fund IPCCC Intergovernmental Panel on the Convention for Climate Change IRENA International Renewable Energy Agency kgoe kilogram of oil equivalent kW kilowatt kWp kilowatt peak LCOE levelized cost of energy LPG liquefied petroleum gas MJ megajoule Mtoe million tons of oil equivalent MTF Multi-tier Framework xiv REGIONAL COOPERATION FOR SUSTAINABLE ENERGY IN ASIA AND THE PACIFIC

MW Megawatt MWh Megawatt hour NEV neighbourhood electric vehicle OECD Organisation for Economic Co-operation and Development PED primary energy demand PJ petajoule PPA power purchase agreement PPP purchasing power parity REEEP Renewable Energy and Energy Efficiency Partnership SAARC South Asian Association for Regional Cooperation tce ton of coal equivalent TFEC Total final energy consumption toe ton of oil equivalent UNDP United Nations Development Programme UNEP United Nations Environment Programme UNSD United Nations Statistics Division UNFCCC United Nations Framework Convention on Climate Change WEC World Energy Council WHO World Health Organization REGIONAL COOPERATION FOR SUSTAINABLE ENERGY IN ASIA AND THE PACIFIC 1

INTRODUCTION

ountries in Asia and the Pacific face multiple are in South Asia, South-East Asia and the Pacific. Most energy-related challenges. The first challenge is to of the population without energy access are in areas increaseC energy supplies to meet the growing demand in that face the most difficult geographic challenges, such a region undergoing rapid urbanization, industrialization as islands and areas that are rural or remote. In absolute and economic growth. The second is to improve energy terms, the countries in the Asia-Pacific region with the access for the millions of people that lack access to largest electricity access deficit are India, Bangladesh, electricity and the billions that rely on traditional biomass Pakistan, Indonesia, and Myanmar. Countries having high for cooking and heating. The third is to shift to using low- proportions of the population without energy access carbon-energy resources and to diversify the energy mix tend to be in the Oceania region: Papua New Guinea, to enhance energy security, reduce environmental impacts, Solomon Islands and Vanuatu. Additionally, the countries especially air pollution, and meet global commitments with the largest dependence on inefficient and unhealthy on climate change. cooking methods are in the region, including India, China, Bangladesh, Indonesia, Cambodia, Myanmar, Mongolia, Meeting these multiple energy-related challenges the Lao People’s Democratic Republic, Viet Nam and Fiji requires a transformation in the way in which energy (World Bank, 2017). is generated, transmitted and consumed. Addressing energy challenges is also an integral part of the While the energy sector in many countries is being slowly implementation of the 2030 Agenda for Sustainable transformed, increasing the pace of the changes required Development, which entails achieving the Sustainable to attain the SDGs and national energy security ambitions Development Goals (SDGs), including SDG 7: ensure require the following: more robust and predictable access to affordable, reliable, sustainable and modern government legislation and policy; increased public energy for all. Major components of this transformation and private investment in and financing of the energy include improved energy efficiency, increased renewable transition; enhanced technical innovation and solutions; energy in the energy mix, enhanced energy access and and new partnerships within and among countries and better connectivity across the region. subregions.

Asia and the Pacific is highly diverse and the trans- The energy future of the Asia-Pacific region will have a formations will vary greatly across the region. While some significant impact on other SDGs, including, among others countries suffer from energy shortages, which limit their the end of poverty and hunger; sustainable cities and economic and social development, others enjoy energy communities; good health; gender equality, clean water; surpluses. The demographics of energy poverty also vary climate action, responsible use of natural resources; and across the region. The highest levels of energy poverty universal access to clean and affordable energy services. 2 REGIONAL COOPERATION FOR SUSTAINABLE ENERGY IN ASIA AND THE PACIFIC

Against this background, this theme study on enhancing Chapter 3: Towards developing energy transition regional cooperation for sustainable energy in the Asia- strategies Pacific region is divided into four chapters: The third chapter offers a menu of options on legislative, regulatory, and programmatic initiatives that policymakers Chapter 1: Energy transition is vital to sustainable may consider as they develop strategies for energy development transition. It also examines different measures to ensure The first chapter assesses factors driving energy that the transformation is economically viable, socially transformation in the Asia-Pacific region, which will allow acceptable, environmentally sound and consistent with the region to meet growing energy demand to enhance national priorities. energy access, and shift to cleaner energy. It provides some instructive examples of energy transitions and lists Chapter 4: Regional cooperation for sustainable energy some of the many potential benefits of energy transition This chapter discusses ongoing subregional efforts for sustainable development. to promote cooperation and opportunities for further cooperation, especially at the regional level, which Chapter 2: Progress and challenges towards achieving holds great potential to accelerate energy transition SDG 7 while increasing cost effectiveness. Finally, it provides This chapter discusses indicators for measuring progress recommendations for developing a regional cooperation towards achieving the goal of ensuring access to framework on sustainable energy development that affordable, reliable, sustainable, and modern energy for promotes energy system transition pathways, regional all SDG 7. The status of progress on each indicator is connectivity, and institutional arrangements to promote assessed along with insights into the challenges the means of implementation. region faces in achieving energy transformation and, in particular, the 17 SDGs. REGIONAL COOPERATION FOR SUSTAINABLE ENERGY IN ASIA AND THE PACIFIC 3 4 REGIONAL COOPERATION FOR SUSTAINABLE ENERGY IN ASIA AND THE PACIFIC REGIONAL COOPERATION FOR SUSTAINABLE ENERGY IN ASIA AND THE PACIFIC 5

CHAPTER 1 ENERGY TRANSITION IS VITAL TO SUSTAINABLE DEVELOPMENT 6 REGIONAL COOPERATION FOR SUSTAINABLE ENERGY IN ASIA AND THE PACIFIC

nergy transition is not only essential in order to Despite this progress, the inertia of the existing energy reach the targets of SDG 7, but indeed, many of sector is considerable, with its long-lived assets and Ethe other SDGs can benefit from the spillover effects of entrenched institutional arrangements. The success of affordable, reliable, sustainable, and modern energy for the energy transition will require sustained commitment all. Moreover, fulfilling the commitments made in the at national and regional levels through better policies, Paris Agreement requires a rapid energy transition in incentives, and allocation of investments.1 the Asia-Pacific region. Energy transition has the potential to contribute to energy security; it can reduce energy poverty, leading to a wide range of social benefits 1. DRIVING FORCES FOR and it can drastically reduce environmental and health hazards. ENERGY TRANSITION

To this end, the energy transition must address both Two types of forces are creating the momentum for the supply and demand. On the supply side, the energy region’s energy transition to move forward. The first force transition means affordable, reliable and secure access is the need to create a future in which the Asia-Pacific to electricity and clean fuels and technologies, and population has much better prospects for good health, shifting to more sustainable and environmentally benign secure lives, and opportunities for economic growth. The energy resources, technologies and infrastructure. On second one is the push to mitigate climate change and the demand side, it requires substantial improvements its negative consequences for the region. in economy-wide energy efficiency. From the standpoint of public policy, the transition requires that government Energy security: Asia and the Pacific is energy rich, programmes and fiscal policies be aligned with the although energy resources vary within the region. Some SDGs and national commitments to reduce greenhouse countries have significant hydrocarbon deposits, but they gas emissions under the Paris Agreement. In addition, a often are not managed efficiently. Other countries depend timely energy transition necessitates strong government on fossil fuel imports. The populations dependent on fossil leadership, a strong public commitment, the mobilization energy imports experience the volatility of that sector, of market forces and enabling public policies. Social including significant macroeconomic complications when and environmental benefits and costs that have been oil prices are high. The distribution of renewable energy uncounted in energy markets must be reflected in market resources such as wind, solar and hydro also varies. prices to help consumers and government leaders make Energy shortages and structural issues impede the ability fully informed energy choices. of developing countries to expand their energy supplies.

Indeed, a transformation of the Asia-Pacific energy On the other hand, enhancing energy security protects economy is already under way. It is taking place in the economies from price fluctuations and market instability by region’s energy sectors, but the pace and sequence reducing dependence on imported fuels. More recently, of reform varies depending on national circumstances the drive towards better demand-side management, and development priorities. encompassing load management and energy efficiency, has helped to address energy security concerns by New technologies are reducing the cost of clean reducing overall electricity demand and peak loads. Off- energy and renewable power. Smart grids and electric grid renewable technologies enhance energy security by vehicles are rapidly gaining market share. Since 2010, avoiding increase demand and grid congestion while the cost of solar power generation has declined by also lowering the cost of building and maintaining 58 per cent and cost of wind by one-third within transmission and distribution lines. Therefore, the traditional 10 years, edging below fossil fuel electricity costs in understanding of affordability, accessibility, and continuity most Asia-Pacific countries. Advances in long-distance of supply has been expanded to include the long-term power transmission technologies enable the linking shift to low-carbon and sustainable energy systems that not of renewable energy resource-rich areas such as the only provide the energy required for economic growth, Gobi Desert, Central Asia, and far eastern parts of but also facilitate broader development goals. Russian Federation, with distant population centres. Asia and the Pacific has emerged as an engine for clean Different energy security priorities and concerns influence energy, both as a manufacturing centre for renewable the clean energy transition in Asia-Pacific countries. For energy technologies and as the leading region for developed economies, such as Australia, Japan, New deployment. Zealand and the Republic of Korea, energy security REGIONAL COOPERATION FOR SUSTAINABLE ENERGY IN ASIA AND THE PACIFIC 7

Box 1.1. China’s 13th Five-Year Plan for Energy Development

In China, the 13th Five-Year Plan for Energy Development (2016-2020) includes strategies promoting energy transition by focusing on energy demand structure and promoting green industry that is conducive to the changing economic growth pattern. It made clear the country’s intention to deepen the transition to clean energy and low- carbon development in the next five years, which would be a pivotal period for its efforts to green itsenergy and economy. The plan targeted a reduction in energy consumption by 15 per cent per unit of GDP compared to 2015 levels and an increase to 15 per cent from non-fossil fuels (from 11.4 per cent in 2015).

To reach these goals, the country’s energy production mix is set to be diversified and shift away from coal towards a greater proportion of renewables. China is increasing the efficiency of coal-fired power plants, plans to shut down coal-fired boilers that fail to meet national standards, and has restricted the construction of new coal-fired plants. The plan also supports an increase in renewable energy capacity and connection through Government support for wind, solar, and biomass energy production. The Government also plans to continue to invest in new hydropower, energy storage and nuclear power projects and increase the network of smart grids and ultra-high- voltage power transmission.

Note: Policies available on asiapacificenergy.org. priorities include stockpiling supplies, diversifying fuels the priority is to enhance universal energy access, close and sources, and attaining greater shares of clean the energy demand-supply gap from imports and energy. For emerging economies with rising energy secure capital and financing for investments in resource needs, such as China (box 1.1) and India, energy development and infrastructure. For small island countries, security priorities include improving energy efficiency and the focus is on improving energy governance, increasing demand management, diversifying fuels and sources of the use of locally available renewable energy resources, imports, reforming and creating markets, and investing improving data and information and ensuring a stable in energy infrastructure/generation capacity. For major flow of external aid. fossil fuel exporters, such as Australia, Brunei Darussalam, Indonesia, the Islamic Republic of Iran, Kazakhstan and Increasing energy demand: The strong economic growth the Russian Federation, energy security priorities include potential of the region points to an energy scenario in protecting trade infrastructure and routes, continuing the which energy demand growth will continue to outstrip that flow of investments and technology, ensuring security of of every other region. Several future trends are likely to revenue streams, and gaining access to new reserves. For drive the increase in energy consumption in the region. middle-income countries with high import dependence, First, economic growth averaged 5 per cent annually diversifying import sources and fuels, investing in external between 1990 and 2014. During the same period, total reserves, and maintaining flexibility in energy systems are primary energy supply (TPES) grew at an average of 2.98 important, such as the example from Thailand in box 1.2. per cent annually. Energy demand is projected to increase For low-income countries with net import dependence by 60 per cent between 2010 and 2035 (ADB, 2013a),

Box 1.2. “Thailand 4.0”

The Government of Thailand is promoting "Thailand 4.0", a Government agenda and 20-year national strategy that builds the country’s competitiveness in attaining sustainable development. Thailand 4.0 includes six areas: (1) security; (2) competitiveness enhancement; (3) human resource development; (4) social equality; (5) green growth; and (6) rebalancing and public sector development. Energy policies are being aligned with this agenda to bring Thailand forward with creativity, innovation, sustainability, security and energy systems integrated with the efficient use of energy. The Ministry of Energy has set up the "Energy 4.0" as a policy platform for integrating the efficient use of new and renewable energy, smart grids, energy storage technology, small power producers, hybrid firms and electric vehicles. This integrative approach, which is a priority energy policy of Thailand, has resulted in a large sector of sustainable and mature technology that represents attractive investment opportunities.

The policy is focused on finding the solution for today’s challenges in energy, transportation fuels, electricity, and fuels for heat recovery and supporting relevant research projects and activities that strengthen the economy of Thailand. While investments in fossil fuel power generation continue, the policy is an indication of the government’s intent to find new solutions to the country’s energy challenges. 8 REGIONAL COOPERATION FOR SUSTAINABLE ENERGY IN ASIA AND THE PACIFIC or approximately 3,650 million tons of oil equivalent would, therefore, need to meet the needs of people (toe). Second, over the next few decades, there will be a without access to energy services, as continued lack of need to connect citizens in remote areas to the grid who access reinforces the cycle of poverty, hinders livelihood currently do not have access to electricity and support improvement and presents a significant impediment to their consumption growth as they move up the economic sustainable development for the region. ladder. Third, the Asia-Pacific region will account for 66 per cent of the global middle-class population and 59 Renewable energy technologies, such as solar photovoltaic per cent of global middle-class consumption by 2030, cells and wind turbines, are the most rapid, least expensive compared to 28 per cent and 23 per cent, respectively, and most versatile way to eliminate energy poverty in today.2 The emergence of a large middle class will have remote, off-grid areas. They can be installed in days as a significant impact on energy demand and on goods compared to the several years it takes to build central and services that have embedded energy. power plants and the extensive infrastructure necessary for the transmission of electricity to consumers. At the Energy sources will need to be exploited in order to meet end of 2016, solar power became the cheapest source growing demand; their efficiency will greatly influence the of electric power in many regions. Bloomberg New course of economic development, environmental health, Energy Finance has indicated that new solar projects in and social progress in the region and beyond. On a emerging markets cost less than wind power in these national scale, renewable energy and energy efficiency markets. The overall shift to clean energy can be more reduce energy imports and trade deficits, lower the cost expensive in developed countries, where electricity of government operations, increase profit margins or demand is flat or falling and new solar must compete expansion capital for businesses, and allow consumers with existing billion-dollar coal and gas plants. However to spend savings on other needs. When they are spent in countries that are adding new electricity capacity as locally, these savings have a multiplier effect in which quickly as possible, renewable energy will outcompete one dollar of spending circulates through the economy any other energy technology in most of the world and produces several dollars of local impact. without subsidies.3

Gaps in energy access: Asia and the Pacific is growing Distributed energy technologies, such as solar photovoltaic rapidly, but the benefits reaped from the growth are panels and cogeneration systems located close to not shared evenly. In the region, 421.4 million people energy consumers, for example, on buildings and in still do not have access to modern energy services and neighbourhoods where several homes share the power, 2.1 billion lack access to clean fuels for cooking and make it possible to reduce the cost of power distribution heating (World Bank, 2017). While current trends indicate infrastructure and help prevent congestion on the electric improvements in access to electricity, the number of grid. They also enable consumers to control their own people without access to clean fuels has remained steady energy production. When the systems are dispersed, at around 2 billion over the past two decades. Reliable they are less vulnerable to large-scale power disruptions energy access provides a foundation for social equity and or cyberattacks. In addition, the production, installation, environmental sustainability and propels productivity and and servicing of distributed renewable energy systems economic development. Future increases in energy supply creates local jobs (table 1.1). Table 1.1. Estimated new permanent, full-time construction and operation jobs projected due to converting to wind, water, and sunlight systems

Country Permanent, full-time construction jobs Permanent, full-time operation jobs Australia 232 544 252 558 Azerbaijan 39 091 34 505 Bangladesh 195 199 210 508 China 5 806 725 6 675 881 India 2 619 000 2 052 951 Republic of Korea 432 100 680 146 Russian Federation 624 683 748 415 Thailand 408 753 409 351

Source: Jacobson and others, 2017. Note: These employment numbers do not include all external jobs created in such areas as research and development, storage development, and local economy improvement. REGIONAL COOPERATION FOR SUSTAINABLE ENERGY IN ASIA AND THE PACIFIC 9

Environmental impacts on health and well-being: The energy cost stability, and environmental stewardship by increased consumption of energy, especially fossil fuels, 2050 (Jacobson and others, 2017). has significant local and regional social and environmental consequences and costs. Air pollution is disrupting not Decarbonizing the energy sector: The Asia-Pacific region just the health of people, but it is also adversely affecting accounts for more than half of global emissions. In 2015, the growth potential of entire cities and economies. Of countries reached the landmark Paris Agreement to the 1,622 global cities listed in the 2014 World Health combat climate change and to accelerate and intensify Organization (WHO) Ambient (Outdoor) Air Pollution the actions and investments needed for a sustainable low- Database, Asia-Pacific cities represented 85 of the top carbon future, to keep the average global temperature 100 polluted cities, ranked according to annual average from rising in this century well below 2 degrees Celsius levels of PM10 and PM2.54. Average PM10 and PM2.5 above pre-industrial levels and to pursue efforts to limit levels among those cities ranged from 5 to 27 times the temperature increase even further to 1.5 degrees higher than WHO air quality guidelines. Celsius. This requires a strong reduction in the emissions of greenhouse gases by 2050, necessitating a profound In 2015, more than half of the 4.2 million early deaths transformation in how energy is supplied and used worldwide attributed to air pollution occurred in India and around the world. China, according to the Health Effects Institute.5 India and Bangladesh have suffered the steepest increases in air While the region’s per capita emissions remain well pollution since 2010 and have the highest concentration below the global average, in 2016, six of the world's ten of particulates in the world. With regard to public health, largest sources of energy-related carbon emissions were table 1.2 shows projections of the premature fatalities from the Asia-Pacific region: China; Russian Federation; and related costs that could be avoided in eight Asian India; Iran (Islamic Republic of); Japan; and Republic of countries. Although these are projections, some of the Korea.6 The region‘s carbon emission more than doubled health benefits from decommissioning coal-fired power in only 20 years. Therefore, an energy transition in the plants in the region’s megacities have already been seen. region is essential for the success of the Paris Agreement and the implementation of the nationally determined Fuel savings, the “externalities” or costs associated with contributions, and to encourage efforts to close the gap health impacts of air pollution and the avoided costs of that exists between current emissions commitments and catastrophic climate impacts, balance almost all the costs the international emissions goal to limit global warming of the transition. A full transition to a sustainable energy to well below 2 degrees. economy, according to a scenario developed by Stanford University, would result in substantial tangible benefits with 13 of the 30 countries most vulnerable to damages regards to employment, energy reliability, public health, from climate change are also in the Asia-Pacific region.

Table 1.2. Air pollution PM2.5 plus ozone premature mortalities avoided by 2050, by country, and corresponding mean avoided costs (in 2013 US$) arising from all air pollution related damage (mortalities, morbidities, and non-air pollution effects)

2050 Avoided premature 2050 Mean avoided cost 2050 Mean avoided cost Country mortalities per year (in 2013 USD million per year) as percent of 2050 GDP Australia 2 073 23 449 1.2 Azerbaijan 3 867 38 636 6.3 Bangladesh 280 467 419 857 16.0 China 638 165 6 166 179 9.1 India 805 227 4 849 682 12.2 Republic of Korea 12 249 129 449 4.9 Russian Federation 102 559 1 057 711 16.6 Thailand 17 709 143 145 5.4

Source: Jacobson and others, 2017. Note: This method projects future pollution from contemporary levels with an estimated annual rate of pollution change that considers increasing emission controls and more sources over time. The number of premature mortalities in 2050 accounts for the growth of population by country and a nonlinear relationship between exposure and population. 10 REGIONAL COOPERATION FOR SUSTAINABLE ENERGY IN ASIA AND THE PACIFIC

70 per cent of the world’s natural disasters, 50 per cent renewable energy, coupled with political commitments, of the damages caused by those disasters, and 90 per has finally started to shift this trend; the region observed cent of the resulting fatalities in the last century occurred an upward trend in its share of renewable energy in in Asia-Pacific countries (IFAD, n.d.). Coastal communities 2014. Globally, an estimated 161 gigawatts (GW) of and entire island States are facing inundation because of renewable power capacity was added in 2016.8 This sea level rise and storm surges. (box 1.3) The populations growth occurred despite tumbling global prices for fossil in the low-lying river deltas of Bangladesh, China, fuels, ongoing fossil fuel subsidies, and other challenges India and Viet Nam are exposed to floods and storm associated with renewables, including the integration of surges. increased renewable energy, policy and political instability, regulatory barriers and fiscal constraints. Achieving the goals specified in the Paris Agreement requires immediate action, including a sustained com- Social benefits: Access to modern renewable energy mitment to energy efficiency and clean energy resources provides an array of benefits for poorer populations. so that CO2 emissions peak soon and start declining Depending on scale, solar electric technologies can steeply thereafter. As the Intergovernmental Panel on provide lighting, refrigeration for food and medical Climate Change noted in its Fifth Assessment Report: supplies, and liberation from the drudgery of gathering Delaying additional mitigation (of climate-changing wood, dung, and other indigenous fuels, a burden that emissions) to 2030 will substantially increase the typically falls on women and children in poorer areas. challenges associated with limiting warming over In fact, the “bottom-of-the-pyramid” energy users spend the 21st century to below 2°C relative to pre- $37 million on resources such as kerosene, batteries, industrial levels. It will require substantially higher and candles (IFC, 2012). Simple solar technologies, from rates of emissions reductions from 2030 to 2050: lanterns to village-scale micro-grids, provide cleaner and a much more rapid scale-up of low-carbon energy more reliable electricity and often act as catalysts for the over this period… and higher transitional and long- creation of small enterprises and jobs. term economic impacts. (IPCC, 2014) In all economic strata, energy efficiency and renewable Between 1990 and 2014, the overall energy mix of the energy lead to dramatic improvements in public health region has barely changed. The share of fossil fuels as polluting fuels are replaced with benign energy. increased from 80.4 per cent to 85.2 per cent, while Confidence in low energy prices and stable supplies the share of renewable energy declined from 16.72 inspires more business development and investment. per cent to 12.83 per cent against the backdrop of the Lower fuel bills free up money for education, cultural large increase in supply.7 At the global and regional activities, and recreation. In addition, renewable energy levels, the share of renewable energy has been relatively technologies have proved to be prolific job creators, steady over the past two decades, despite volatile and increasing the economic stability of families and fluctuating oil prices. However, the decline in the cost of communities.

Box 1.3. Pacific aspirations

In the Pacific, countries are not only faced with the extreme adverse effects of climate change, including increased occurrence of violent weather and coastal erosion, but they are also affected the continued reliance on imported fuels, which penetrates most sectors of the economy (including energy generation and transport). Their reliance on imported fuels leaves the countries heavily susceptible to oil price fluctuation, resulting in large burdens on foreign exchange reserves. Several Pacific economies have adopted the goal of 100 per cent renewable electricity generation, including the Cook Islands, Niue, Papua New Guinea, Samoa, Tokelau, Tuvalu, and Vanuatu. Fiji has planned more investment in renewable energy projects to reduce its reliance on fossil fuels — the National Energy Policy (2014) calls for an increase in renewable energy production to 80 per cent of its total production by 2020 and to 100 per cent by 2030. Vanuatu has led the way to greater renewable energy with its National Energy Road Map, which was launched in April 2014 to secure 100 per cent renewable energy over the next 15 years. The Tonga Energy Road Map 2010-2020 lays out a least-cost approach and implementation plan to reduce the country’s vulnerability to oil price shocks and boost access to modern energy services in a financially and environmentally sustainable manner.

Note: Policies available on asiapacificenergy.org. REGIONAL COOPERATION FOR SUSTAINABLE ENERGY IN ASIA AND THE PACIFIC 11

Box 1.4. Transition from kerosene stoves to liquefied petroleum gas in Indonesia

The Government of Indonesia initiated a large-scale household energy programme, called “the LPG Megaproject”, to transition household cooking fuels from kerosene to liquefied petroleum gas (LPG). The key driver for the transition was air quality improvement. Households were offered a free initial package of a 3-kg LPG cylinder, one burner stove, a hose and a regulator. Kerosene subsidies were, at the same time, lowered. New refrigerated LPG terminals were also constructed to provide distribution centres. Between 2007 and 2009, the number of LPG stoves in Indonesia increased from 3 million to a staggering 43.3 million. This represented almost 70 per cent of the country’s 216 million people. All kerosene subsidies were withdrawn as the LPG Megaproject accomplished its target.

Source: Budya and Yasir Arofat (2011).

2. THE NEED FOR RAPID ACTION Energy policies must be well considered and carefully designed, taking into account national circumstances Past energy transformations have taken decades at (box 1.5). Energy efficiency and renewable energy varying scales. However, some energy transformations technologies must be deployed today at speeds that have occurred more quickly, in less than one generation. are unusual, even unprecedented, in government policy Examples include the almost complete transitions of the circles. There are enormous opportunity costs involved in Netherlands to natural gas, France to nuclear power, delaying the economic and health benefits of the energy Denmark to combined heat and power, and Ontario, transition. Significantly altering a country’s energy balance Canada, to coal retirements. (Sovacool, 2016). On the to make way for a greater contribution from low-carbon technology side, the government-driven shift in Indonesia resources can and may take less time than governments to gas stoves is an example of rapid action (box 1.4). and policymakers might imagine. The transition was Outside the energy sector, rapid market penetration of accomplished in less than 15 years in the Ontario case, new technologies have changed the world. One well- as described in box 1.6. known example is cell phones: six billion of the world’s seven billion people have access to cell phones.

Box 1.5. The German “Energiewende”a

The Energiewende is Germany’s pathway into an energy future that is secure, environmentally friendly and economically successful. Germany has decided to fundamentally alter its energy supply: moving away from nuclear energy and fossil fuels and towards renewable energy. By 2025, the plan calls for Germany to source at least 40 per cent of its energy from renewables with the goal to raise this to at least 80 per cent by 2050. The plan also calls for greater energy efficiency. Germany has already made great strides; currently, almost one third of electricity comes from wind, solar, and biomass. This makes renewables the country’s greatest source of electricity.

Energy in Germany has not only become greener, it is used more economically. Primary energy consumption has been cut significantly in recent years, declining 8.3 per cent between 2008 and 2014. Approximately 35 percent of the country’s total final energy consumption is residential, with most of it used to provide space heating and hot water. Because the residential market represents a great energy savings potential, the Federal Ministry for Economic Affairs and Energy is also focusing on energy efficiency in the building sector, offering comprehensive advice and attractive funding programmes.

However, an energy supply with decentralized, primarily renewable energy sources presents its own challenges, as it creates the need to transport large amounts of electricity over large distances. The power from one major power generation source, a wind farm in the north, has to be transported to the large consumption centres in the south of the country. Germany plans to focus on expanding the major supraregional transmission grids and the local distribution grids to accommodate these needs. At the same time, consumption and conventional generation need to become much more flexible. By digitizing the energy transition through smart metres, Germany will be able to more efficiently align generation and consumption needs.

a See http://www.irena.org/DocumentDownloads/Publications/RE_stats_highlights_2017.pdf. 12 REGIONAL COOPERATION FOR SUSTAINABLE ENERGY IN ASIA AND THE PACIFIC

Box 1.6. Ontario’s transition away from coal-fired power generation

In 2003, the government of Ontario in Canada resolved to retire the province’s coal-fired electricity generation in four years. This goal was accomplished in 2014, 11 years after the resolution was made. The retirement of power plants occurred in stages, with the oldest plant (the 1,140 MW facility in the Lakevie) closed in April 2005. This was followed by sequential retirements of coal-fired power plants in Thunder Bay (306 MW), Atikokan (211 MW), Lambton (1,972 MW), and Nanticoke (3,945 MW) between 2007 and 2014. The contribution of coal to the province’s s electricity supply declined from 25 percent in 2003 to 15 per cent in 2008, 3 per cent in 2011, and, finally, to zero in 2014. Public health was the key consideration for these closures, apart from obvious climate change benefits.

A government-funded studya estimated that an energy transition would reduce some 333,660-air pollution-related illnesses and more than 700 air pollution-related mortalities to fewer than 2,460 illnesses and only six mortalities. The study also indicated that the transition could lead to a $4.4 billion savings per year in health, environmental, and financial damages along with $95 million in displaced operating and maintenance costs.

The transition was facilitated by public investmentsb from the Government of Ontario of more than $21 billion in cleaner sources of energy that included wind, hydroelectricity, solar and nuclear power. Upgrades in transmission and distribution costing of approximately $11 billion complemented the transition. By 2025, the province expects renewable sources of electricity to increase to 46 per cent of supply. Savings incurred customers are also expected.

Source: Sovacool (2016). a See https://news.ontario.ca/opo/en/2013/11/ontario---first-place-in-north-america-to-end-coal-fired-power.html. b See http://www.energy.gov.on.ca/en/ltep/achieving-balance-ontarios-long-term-energy-plan/.

3. CONCLUSION Reliable energy access provides a foundation for social equality and environmental sustainability and drives Considering the various driving forces towards energy productivity and economic development. In this regard, transition and the potential of its wide-ranging benefits, off-grid and mini-grid solutions often enable the provision it is evident that such a transition is vital to sustainable of electricity to remote regions much more quickly and development. The success of both, the 2030 Agenda at a lower cost than the expansion of a centralized grid. for Sustainable Development and the Paris Agreement, Renewable energy technologies, such as solar photovoltaic is dependent on the rapid implementation of measures panels, wind turbines, and small hydro, are often the to improve energy efficiency, to increase the share of most economically attractive solutions for off-grid and renewables, and to provide access to affordable, reliable mini-grid electrification. and modern energy for the entire population of the Asia-Pacific region. Rapid energy transition is also required to ensure that the region’s carbon emissions peak early enough to Increasing energy security in the region is crucial for enable the fulfilment of the commitments made in the economic development and the well-being of the Paris Agreement and to mitigate the negative impacts population, but it requires approaches that are tailored of climate change on the region. In addition, energy to the diverging challenges and needs of the various transition is the key to the reduction of air pollution, subregions and the individual countries. The challenge of which has not only had severe impacts on the economy addressing energy security is amplified by the fact that of many of the major cities in the region, but is also energy demand will continue to grow strongly in the responsible for millions of premature deaths every year, entire Asia-Pacific region, outstripping that of any other caused by respiratory diseases. region. Considering this, increasing energy security will necessitate far-reaching changes on both the demand With this urgency for rapid action in mind, the next chapter side and the supply side. contains an analysis on progress in the Asia-Pacific region towards achieving SDG 7. In many cases, the benefits of energy transition have already materialized, providing further impetus for the massive efforts that are needed to address the outstanding challenges. REGIONAL COOPERATION FOR SUSTAINABLE ENERGY IN ASIA AND THE PACIFIC 13

ENDNOTES 1 Shamshad Akhtar, Regional Solutions Key for Asia-Pacific’s Transition to Sustainable Energy, United Nations, Economic and Social Commission for Asia and the Pacific, January 19, 2017. See http://www.unescap.org/op-ed/regional-solutions-key-asiapacific%E2%80%99s-transition-sustainable-energy. 2 See http://oecdobserver.org/news/fullstory.php/aid/3681/ An_emerging_middle_class.html. 3 See https://www.bloomberg.com/news/articles/2016-12-15/ world-energy-hits-a-turning-point-solar-that-s-cheaper-than- wind. Based on data from Bloomberg New Energy Finance. 4 See http://www.who.int/phe/health_topics/outdoorair/data bases/cities-2014/en/. 5 Health Effects Institute, State of Global Air 2016: A Special Report on Global Exposure to Air Pollution and Its Disease Burden. See https://www.stateofglobalair.org/sites/default/files/ SOGA2017_report.pdf/. 6 China, India, the Russian Federation, Republic of Korea, and Islamic Republic of Iran. 7 Based on data from ESCAP Asia Pacific Energy Portal. See asiapacificenergy.org. 8 See http://www.irena.org/DocumentDownloads/Publications/ RE_stats_highlights_2017.pdf. 14 REGIONAL COOPERATION FOR SUSTAINABLE ENERGY IN ASIA AND THE PACIFIC REGIONAL COOPERATION FOR SUSTAINABLE ENERGY IN ASIA AND THE PACIFIC 15

CHAPTER 2 PROGRESS AND CHALLENGES TOWARDS ACHIEVING SUSTAINABLE DEVELOPMENT GOAL 7 16 REGIONAL COOPERATION FOR SUSTAINABLE ENERGY IN ASIA AND THE PACIFIC

he 2030 Agenda for Sustainable Development services but also thermal energy needs for cooking and encompasses a vision for a future which is safe, heating. With the primary objective of extending access Tresilient, and sustainable. The 2030 Agenda comprises 17 to promote socioeconomic development, the context of SDGs, which are integrated and indivisible. SDG 7 aims energy access includes household energy needs, as well to “ensure access to affordable, reliable, sustainable and as productive activities and community facilities. The new modern energy for all,” and has targets to ensure universal multi-tier framework (MTF) for assessing energy access access to affordable, reliable and modern energy services, provides policymakers with a more multidimensional increase substantially the share of renewable energy in understanding of the role of energy access in productive the global energy mix, and double the global rate of uses (box 2.1). improvement in energy efficiency, all by 2030. SDG 7 presents interlinkages with the other 16 SDGs. Lack of There are two indicators under target 7.1 of Sustainable progress in one sector may hinder the development Development Goal 7: and growth of other sectors. Therefore, a coordinated • Proportion of population with access to electricity and integrated approach to energy transition needs to (indicator 7.1.1) address social, economic, and environmental dimensions • Proportion of population with primary reliance on during implementation of SDG 7. clean fuels and technology (indicator 7.1.2).1 This chapter provides an in-depth overview of progress and the current status of the effort to achieve SDG 7 in The Asia-Pacific region has experienced rapid growth the Asia-Pacific region with particular focus on identifying in access to electricity. Despite significant sustained barriers that impede accelerated implementation at total population growth (from 3.173 billion in 1990 to the national level. In addition, this chapter includes an 4.345 billion in 2014), as of 2014, the average total assessment of development trends with the three targets electrification rate in the region was 90.3 per cent, up 2 associated with SDG 7 and the vital role each one plays from 70.2 per cent in 1990. This amounts to more than in accelerating energy transition. 71 million people gaining access to electric power each year. However, in spite of huge strides in electrification, 421.4 million people in the Asia-Pacific region still do 1. ENSURE UNIVERSAL ACCESS not have access to electricity, exacerbating inequalities among people (figure 2.1). Most of those without TO AFFORDABLE, RELIABLE electricity live in India (269.8 million), Bangladesh (59.8 AND MODERN ENERGY million), Myanmar (25.7 million), the Democratic People’s Republic of Korea (16.9 million), and the Philippines (10.8 SERVICES (TARGET 7.1) million).3

Energy access has been traditionally linked to a narrower ESCAP region has witnessed increases in access to context of access to electricity services. The goal of electricity, most notably in South and South-West Asia access to affordable, reliable, sustainable and modern where access increased from 47.4 per cent of the energy for all is wide-ranging, covering not only electrical population to 81.7 per cent from 1990 to 2014. Progress

Box 2.1. The Multi-Tier Framework for Measuring Energy Access

The Multi-Tier Framework (MTF) is a new framework for measuring energy access that shifts away from the traditional binary understanding to a multidimensional definition: the “ability to avail energy that is adequate, available when needed, reliable, of good quality, convenient, affordable, legal, healthy and safe for all required energy services.” Energy access is measured in the tiered-spectrum, from Tier 0 (no access) to Tier 5 (the highest level of access). The tiers are as follows: Tier 0: No access Tier 1: >3W for at least 4 hours/day (task lighting and phone charging) Tier 2: >50W for at least 4 hours/day (general lighting, phone charging, TV, fan) Tier 3: >200W for at least 8 hours/day (general lighting, TV, medium-power appliances) Tier 4: >800W for at least 16 hours/day (general lighting, TV, high-power appliances) Tier 5: >2,000W for at least 23 hours/day (general lighting, TV, very high-power appliances)

Source: World Bank (2015). Beyond Connections: Energy Access Redefined. ESMAP Technical Report;008/15. Washington, D.C. REGIONAL COOPERATION FOR SUSTAINABLE ENERGY IN ASIA AND THE PACIFIC 17

Figure 2.1. Progress made: proportion of population with access to electricity, 1990 and 2014

Armenia Papua New Guinea Azerbaijan Democratic People’s Republic of Korea 100 Georgia Vanuatu Kazakhstan Timor-Leste 90 Russian Federation Kiribati 80 Turkmenistan Myanmar 70 Uzbekistan Bangladesh 60 Australia Micronesia (Federated States of) 50 Fiji 40 Lao People’s Democratic Republic French Polynesia 30 India 20 New Zealand Mongolia 10 Maldives 0 Philippines Turkey

Marshall Islands Brunei Darussalam Sri Lanka Malaysia Tonga Singapore Indonesia Thailand Pakistan China Samoa Hong Kong, China Tuvalu Japan Viet Nam Tajikistan Nauru Cook Islands Iran (Islamic Republic of) Palau Kyrgyzstan

Proportion of population with access to electricity, percentage (1990) Proportion of population with access to electricity, percentage (2014)

Source: World Bank, Global Tracking Framework (2017). can also be seen in South-East Asia with growth from and four countries recording a rate that is below 50 per 62.6 per cent in 1990 to 91.4 per cent in 2014 (figure cent (World Bank, 2017). 2.2). However, in the Pacific, access to electricity remained stagnant over the past decade, with the subregion’s In most countries, urban areas have already been access to electricity averaging about 80 per cent. There largely electrified, with average regional urban rates of is a vast difference among individual Pacific countries, approximately 99 per cent (World Bank, 2017). The majority with five countries having an access rate of 99 per cent of people living without access to electricity are in rural

Figure 2.2. Percentage of rural population with access to electricity by ESCAP subregion, 1990- 2014

100

(Percentage) 40

0 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

North and North-East Asia North and Central Asia Pacific South and South-West Asia South-East Asia ESCAP Source: ESCAP, asiapacificenergy.org. 18 REGIONAL COOPERATION FOR SUSTAINABLE ENERGY IN ASIA AND THE PACIFIC areas. In rural communities, the gap is much larger. Figure A number of obstacles have hindered efforts to accelerate 2.2 shows the percentage of rural popluation with access access to clean fuels and technology. In comparison to to electricity among subregions. While urban populations access to electricity, access to clean fuels and technology are largely connected through grid infrastructure, the "last has received less attention in national polices across the mile" in energy access is in many cases the poorest region.5 However, the trend appears to be changing, with segment of the population in remote and dispersed countries, such as India and Indonesia, launching large- communities. In many cases, the gap between urban and scale LPG promotion, for example. In fact, Indonesia has rural populations is dramatic. For example, in Vanuatu, shown the largest growth in access to clean fuels and urban access is almost 100 per cent, while in rural technology: reaching 56.6 per cent in 2014 from a low areas, the number is 8.5 per cent (World Bank, 2017; 2.4 per cent in 2000 (World Bank, 2017). Asia Pacific Energy Portal). In communities where grid extension is not economically feasible, innovative off-grid Potential investors indicated consumer acceptance and solutions and stronger multidimensional partnerships are retention are the largest challenges hindering growth of needed. clean fuels and technology, followed closely by access to financing.6 These challenges are compounded at 1.1. Access to clean fuels and technology the local level from which the introduction of clean fuels and technology requires balancing affordability In addition to providing access to electricity achieving of modern fuels with emissions. Increasing deployment SDG target 7.1 requires greater focus on access to clean and retention of clean fuels and technology requires fuels and technology. As of 2014, total population without particular consideration of the fact that one size does access to clean fuels and technology accounted for almost not fit all when developing cleaner technologies. For 2.1 billion people, or nearly half of the population of example, transitioning from traditional cooking methods the Asia-Pacific region (figure 2.3). Although governments, to cleaner cooking alternatives means that solutions facing increased population growth, have managed to must meet each user’s particular requirements, including keep the number of people without access to clean availability of resources, family size and ability to prepare fuels and technology steady, lack of overall progress in traditional dishes. reducing the number is significantly affecting the health and well-being of people across the region, with women 1.2. Continued barriers to achieve target 7.1 particularly adversely affected. Cooking and heating with wood and other solid fuels and using kerosene for lighting, Various policy, institutional, and financial barriers continue results in heavy indoor air pollution, which is attributed to impede efforts to accelerate progress towards achieving to almost 3.3 million premature deaths.4 universal energy access. Weak institutional mechanisms

Figure 2.3. Proportion of population with primary reliance on clean fuels and technology, 2000 and 2014

Japan Kiribati Australia Timor-Leste 100 Brunei Darussalam Lao People’s Democratic Republic New Zealand Democratic People’s Republic of Korea Singapore Solomon Islands 80 Republic of Korea Myanmar Turkmenistan Bangladesh Malaysia 60 Cambodia Russian Federation

Vanuatu 40 Armenia Afghanistan Iran (Islamic Republic of) Sri Lanka 20 Maldives Micronesia (Federated States of) 0 Azerbaijan Nepal Nauru Samoa Kazakhstan Tuvalu Uzbekistan Papua New Guinea Cook Islands Mongolia Kyrgyzstan India Thailand Fiji Tajikistan Marshall Islands Bhutan Pakistan Tonga Philippines Palau Viet Nam China Georgia Indonesia

Source: ESCAP, based on data from World Bank Global Proportion Tracking of Framework population with Report access (2017). to CFT, percentage (1990) Proportion of population with access to CFT, percentage (2014) REGIONAL COOPERATION FOR SUSTAINABLE ENERGY IN ASIA AND THE PACIFIC 19 and capacity within governments to facilitate the required 1.3. Productive end uses partnerships at the national, local, and community levels often hinder progress. Taken as a whole, providing energy for clean cooking should not be seen as an end in itself, but as a catalyst Weak cooperation among government stakeholders is, to enable productive energy use and create wider in fact, a decisive risk for private-sector investment. For economic, social, and environmental impact. The positive the private sector to enter the rural electrification market effect of energy access is most visible and quantifiable in partnership with government agencies mandated with at the microlevel, but long-term health and education decentralized energy efforts, access to the national utility’s improvement, enterprise creation, increased business and grid expansion plan is absolutely necessary to determine income-generating potential, local employment, greater the areas of most need and greatest investment potential. gender equality and overall poverty reduction, among An integrated national electrification planning process that many others, should also be considered. outlines the areas and timeline for grid expansion would open up the market for private sector investment by Electricity is necessary, but, in isolation, it will not necessarily providing predictability and avoiding investment losses. generate income or reduce poverty. In principle, electricity may lead to a range of direct and indirect poverty Financing remains a key challenge in accelerating progress reduction impacts, including higher profitability and towards universal energy access. It is estimated that income for small business owners. In reality, however, from $1 billion to 52 billion7 per year will be required access to electricity supply alone is not enough to globally, depending on the level, or Tier, of energy trigger productive uses. Therefore, the energy sector access governments aspire to in national electrification cannot be expected to be the only solution, it needs strategies. Financing solutions remain primarily reliant support and cooperation from other ministries, experts, on grant funding and microlending, leaving investment non-governmental organizations, and other stakeholders levels lower than required to meet the needs. Therefore, to fully realize the potential benefits. with often limited public resources, a key challenge for government is to create a policy environment that For example, energy access has the potential to boost effectively leverages additional financing. Private sector productivity in the agricultural sector by facilitating, through financing in particular would play a significant rolein post-harvest processing, the production of a higher quality meeting the current funding gap. or a larger quantity of produce to be sold at the market. This, however, is beyond the scope of the energy sector However, attracting private capital also remains a challenge, and thus requires support and coordination with authorities as energy projects tend to be burdened with high working in other sectors, such as agriculture. Moreover, upfront capital and often low rates of return along with other conditions need to be addressed, such as roads many (perceived or real) risks for investment. Investment that allow access to external markets, access to credit to is impeded by lack of access to affordable financing purchase end-use technologies, training programmes and and capital scarcity because of weak legal frameworks, professional support for enterprise creation, and business underdeveloped economies, and weak financial sectors promotion and development. (UNDP, 2016). Some of the barriers to private-sector financing for energy access projects are uncertainty in investment and regulatory environments; political risks and 2. INCREASE SUBSTANTIALLY currency fluctuation; weak support from local financing institutions; limited understanding of the energy sector by THE SHARE OF RENEWABLE financiers; and weak stakeholder participation. ENERGY IN THE GLOBAL Thus, increased investment in energy access requires ENERGY MIX (TARGET 7.2) strong coordinated support of governments to facilitate access to low-cost financing, while also addressing the The indicator to track progress related to target 7.2 commercial viability of projects, developing a strong is renewable energy’s share of total final energy pipeline of bankable projects. Governments need to consumption. help by developing a comprehensive risk management package that includes a predictable and enabling policy Substantially increasing the share of renewable energy environment, innovative financing mechanisms and in the region’s energy mix affects directly or indirectly strong stakeholder partnerships to make the sector more efforts to achieve the 17 SDGs. Renewable energy attractive to investors. technologies represent a major element in strategies 20 REGIONAL COOPERATION FOR SUSTAINABLE ENERGY IN ASIA AND THE PACIFIC aimed at meeting rising energy demand, reducing air Countries across the Asia-Pacific region have already pollution, and tackling the critical global problem of committed themselves to increasing the share of climate change. Renewable energy includes solar, wind, renewable energy. Forty-five ESCAP members and ocean, hydropower, geothermal resources, and bioenergy. associate members have established policies for The indicator for target 7.2 focuses on the amount of renewable energy targets, up from only 17 in 2010.8 renewable energy actually consumed rather than the Countries across the region are adopting policies and capacity for renewable energy production, which cannot financing mechanisms to accelerate the deployment of always be fully utilized. By focusing on consumption by renewable energy. The International Energy Agency (IEA) the end user, the metric avoids the distortions caused projects that if countries abide by the Paris Agreement by the fact that conventional energy sources are subject pledges, 37 per cent of global power generation would to significant energy losses along the production chain come from renewable sources by 2040 (compared with (UNSD, 2016). 23 per cent today) (IEA, 2016b).

The Asia-Pacific region is characterized by long-term The Asia-Pacific region increased its renewable energy stable growth in energy consumption, driven mostly capacity by 42 per cent during the period 1990-2014 by developing economies. Although the region is a (World Bank, 2017). A predominant number of countries global leader in installed capacity of renewable energy, in the region use some level of renewable energy, but the rapidly growing demand had been largely met by most of it is traditional, typically biomass (figure 2.4). consuming more fossil fuels, thus reducing the share of However, the energy sector is transitioning slowly to renewables in total final energy consumption (TFEC) to more modern renewable energy technologies. Modern 18.26 per cent in 2014 down from 22.96 per cent in renewable energy sources refer to renewable energy 1990 (World Bank, 2017). However, a small but positive technology minus traditional biomass. This includes wind, growth trend shows the share of modern renewable solar, liquid biofuels, as well as hydropower and modern energy consumption actually growing from 4.9 per cent in biomass among others. In this connection, figure 2.5 1990 to 8.6 per cent in 2014. In addition, the proportion shows the growth in electricity generation from solar, of renewables in TFEC increased slightly between 2012 wind, and tide energy. However, countries should be and 2014 (World Bank, 2017). mindful that large-scale systems, such as hydroelectric

Figure 2.4. Mix of final renewables production by source, exajoules, and shares of total renewables and modern renewables in TFEC, 1990-2014

35 25

30 20

15 20

Exajoule 15 10 Percentage

5 5

0 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Solid biofuels Hydro Solar Geothermal Other Wind Liquid biofuels Renewables in TFEC Modern renewables in TFEC

Source: ESCAP, based on data from World Bank Global Tracking Framework Report (2017). Note: 1 exajoule (EJ) = 277,777 GWh REGIONAL COOPERATION FOR SUSTAINABLE ENERGY IN ASIA AND THE PACIFIC 21

Figure 2.5. Electricity production from solar, wind, and tide energy by ESCAP subregion,1990-2014

4 GWh 3

0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 East and North-East Asia South and South-West Asia South-East Asia Pacific North and Central Asia

Source: Data available from Asia Pacific Energy Portal. Available asiapacificenenergy.org.

North and North-East Asia North and Central Asia Pacific dams and biomass projects maySouth threaten and South-West the well-being Asia of South-EastTurkey added Asia mainly windESCAP power; the Islamic Republic populations and potentially cause environmental damage of Iran added mostly small hydropower; Thailand added if not managed appropriately. mainly solar and biomass; the Philippines added mainly wind but the addition of solar and biomass was also Significant additions to renewable energy capacity were significant; the Russian Federation added mainly solar; achieved between 2010 and 2016. In 2016 alone, half of and Malaysia added more biomass capacities than solar. the global new solar capacity (35 GW) was contributed by China, with Japan bringing an additional 8 GW online Renewable energy targets: Almost all countries in the (box 2.2). In India, capacity from both solar and wind region have set medium-to-long-term renewable energy grew by 4 GW.9 Overall, during the past decade, most targets. Their motivations vary. Among the most common countries added renewable energy capacity: Australia are those that are interlinked with multiple agendas added mainly solar but also a significant capacity of wind; including improving energy security; encouraging the Republic of Korea added mainly solar and biomass; economic development, particularly in association with East and North-East Asia South and South-West Asia

East and North-East AsiaSouth and South-WestSouth-East Asia AsiaPacific North and Central Asia Box 2.2. Energy transition in China

China is the country with the most greenhouse gas emissions, but it is also the world’s largest investor in renewable energy. It has invested billions of dollars in its clean energy sector. The environmental effects of three decades of high-carbon growth have offered the most apparent triggers for change, including air, water and soil pollution.

China illustrates the possibility of a transition that makes the sustainability agenda a primary part of development (Lo, 2014). Of course, the country’s success is also contingent upon other key factors. These include the amplification of capital flight as investors fear that expensive coal mines and coal combustion plants can easily become stranded assets, especially as the replacement renewable energy technologies are ramped up. The Chinese experience, nonetheless, provides an important lesson that other countries in the region can take into account promoting the use of clean energy, in addition to a wealth of other experiences available across the region and beyond, to guide future policy action. It highlights the key role of political will and government’s decisiveness to act (Meadowcraft, 2011).a

a Meadowcroft, James (2011). “Engaging with the politics of sustainability transitions.” Environmental Innovation and Societal Transitions, vol 1, No. 1 (June), pp. 70-75. 22 REGIONAL COOPERATION FOR SUSTAINABLE ENERGY IN ASIA AND THE PACIFIC rural and agricultural sectors or with innovation and such as Australia and India, individual territories and high-tech manufacturing; and protecting the climate states supplement national targets by setting local level and the wider environment from the adverse impacts renewable energy goals. About half of the countries have of fossil fuel use (Müller, Brown and Ölz, 2011). In this set targets relative to either total final consumption or connection, IEA estimates that in the next five years primary energy supply, but almost all countries in the renewable energy will continue to be the source of region have set targets relative to electricity generation. The electricity generation with the greatest growth (from 23 renewable energy targets of most Asia-Pacific countries per cent of electricity generation in 2015 to 28 per cent are shown in table 2.1. in 2021). This represents more than 60 per cent of the increase in world electricity generation in the medium Financing: Financing continues to be a major challenge term (IEA, 2016a). for countries. Investment and the installation of renewable energy reached an unprecedented level in 2015, with Small island developing States in the Pacific are global investment committed to renewables, excluding accelerating renewable energy deployment not only in large hydroelectric projects, rising 5 per cent to $285.9 view of the negative effects of climate change, but also billion, of which $160.6 billion was in the Asia-Pacific for significant economic benefits. Currently, on average, region ($102.9 billion in China and $10.2 billion in India) Pacific island States spend approximately 20 per cent of (World Economic Forum, 2016). The year 2015 marked their GDP on imported energy expenditures, principally the first-time renewable energy accounted for more than diesel fuel (Dorna, 2015). Their continued reliance on 50 per cent of newly installed capacity, and investment in imported fuels that penetrate most sectors of the economy, renewable energy was more than double that of coal and including energy generation and transport, leaves the gas generation (FS-UNEP Centre, 2015). However, in 2016, countries heavily susceptible to oil price fluctuations, new investments in renewables (excluding hydro) fell by 23 resulting in large burdens on foreign exchange reserves, per cent. While on one side, this is a result of historically which, in turn, hinder broader poverty reduction efforts. In low capital expenditures per MW of installed capacity, the Pacific, countries are faced with the extreme adverse the reduction is also because of reduced investment in effects of climate change, including increased occurrence China, Japan, and other markets (FS-UNEP Centre, 2017). of violent weather and coastal erosion. Despite lower investments, regional renewable capacity growth has surged, as noted above. Some targets are contained in aspirational statements, some are included in strategies and action plans, and With innovative approaches and financing mechanisms, others are fully articulated, supported by quantifiable policy such as competitive auctions with long-term power instruments and backed by legally binding obligations purchase agreements, renewable energy technologies, (Kieffer and Couture, 2015; REN21, 2016). The targets including onshore wind and solar, are increasingly in are defined in various ways: as shares of primary energy; a competitive position in comparison to fossil fuel-fired final energy; electricity generation or installed power power generation, already reaching grid parity in many capacity for specific renewable energy technologies based parts of the world (box 2.3). For example, the global on resource potential and grid integration constraints. levelized cost of energy (LCOE) for solar-photovoltaics at Some targets are aggregate shares for renewable energy, the utility scale in 2014 fell to as low as 0.08/kW, a 50 while others are technology specific. For large countries, per cent decrease from 2010 (IRENA, 2015).

Box 2.3. India reverse auctioning for solar and wind farm

Renewable energy deployment through a reverse auction, such as the experience in India, has raised solar and wind generation costs to grid parity levels. In reverse auctions, governments open bidding for a certain capacity of renewable energy generation, with predetermined parameters, and companies bid according to the cost per unit of electricity. The lowest cost per unit of electricity generated wins the contract. Reverse actions differ from feed-in-tariffs (FiTs) in that only the selected companies benefit from the support tariff, and the tariff level is based on the prices indicated by the project developers in their bids during the auction process. In February 2017, India’s first reverse auction for wind power reached tariff drop to a record low of 3.46 Indian rupees (Rs)per kWh.

Source: IRENA, 2013; Solar Energy Corporation of India Limited, available from http://www.seci.gov.in/upload/files/what_new/news/58e493ddc214 dSECIWind1000MWresultwebsiteupload.pdf. REGIONAL COOPERATION FOR SUSTAINABLE ENERGY IN ASIA AND THE PACIFIC 23

Table 2.1. Renewable energy targets in selected Asia-Pacific countries

Share of primary or final energy Share of electricity generation Country Share (percentage) Country Share (percentage) Armenia 26 (2025) PE Armenia +TS Bangladesh 10 (2020) FE Australia 23 (2020)R China 20 (2030)R, FE Azerbaijan 20 (2020)+TS Fiji 23 (2030) FE Bangladesh 10 (2020)+TS Indonesia 25 (2025) PE Bhutan +TS Japan 14 (2030) PE Brunei Darussalam 10 (2035) Republic of Korea 11 (2030) PE Cambodia 25 (2035)R Lao People‘s Demoratic Republic 30 (2025)R, FE China +TS Mongolia 20-25 (2020) PE Fiji 100 (2030) Nepal 10 (2030) PE India 40 (2030) R +TS Palau 20 (2020) PE Indonesia 26 (2025) +TS Samoa 20 (2030) PE Iran (Islamic Republic of) +TS Thailand 30 (2036)R, FE Japan 22-24 (2030)R +TS Vanuatu 65 (2020)R, FE Kazakhstan 50 (2030) +TS Viet Nam 8 (2025) PE Democratic People‘s Republic of Korea +TS Kiribati 3 (2030) Malaysia 11 (2030) +TS Maldives 16 (2017) Marshall Islands 20 (2020) Mongolia 30% (2030) Myanmar 15-18 (2020) +TS New Zealand 90 (2025) Pacific economies (Cook Island, Niue, Tokelau) 100 (2030) Pakistan 10 (2015) Papua New Guinea 100 (2030) Philippines 40 (2030) +TS Russian Federation 4.5 (2020) +TS Samoa 100 (2030) Singapore 8 (no date) +TS Solomon Islands 50 (2015) Sri Lanka 20 (2020) Thailand 20 (2036) R +TS Timor-Leste 50 (2020) Tonga 50 (2015) Turkey 30 (2023) R +TS Tuvalu 100 (2020) Vanuatu 100 (2020) R Viet Nam 5 (2020) +TS

Source: REN 21, Global Status Report 2016. Note: R, recently revised upwards; PE, primary energy; FE, final energy; +TS, additional technology specific targets either as function of generation (MWh) or installed capacity (MW). 24 REGIONAL COOPERATION FOR SUSTAINABLE ENERGY IN ASIA AND THE PACIFIC

With the falling price of technology, a common question development priorities. Those circumstances include is whether electric grids can handle the variability of existence of economies of scale, the diversity of climates, solar and wind generated electricity. Achieving high progress on economic development, topography, and penetrations of renewables involves the application of cultures. This means that a single regional transformation several technologies and approaches, including energy plan would not be effective. Regional plans and policies storage, solar and wind forecasting, demand side must empower countries to develop their own country- response, flexible generation and greater interconnection. specific approaches for achieving SDG 7 and the Technologies to store electricity are developing rapidly. objective developed under the United Nations Framework Market adoption already makes sense in many cases, and Convention on Climate Change (UNFCCC). Indeed, could be boosted with modest public policy support, the Paris Climate Agreement established the necessary which would stimulate technological improvement in international parameters, but each country was invited storage to encourage further growth (Braff, Mueller and to submit its own voluntary commitments and plans for Trancik, 2016). emission reductions.

Another major and common challenge in the Asia-Pacific region, particularly for developing member States, is 3. DOUBLE THE GLOBAL RATE providing stable and long-term policies to facilitate energy OF IMPROVEMENT IN ENERGY system transformation (box 2.4). Predictable policy is important in attracting investment, building up production EFFICIENCY (TARGET 7.3) capacity, promoting the development and lowering the risk of new technologies, and leveraging an expansion Energy intensity is an indication of how much energy is in the number of jobs created. Governments can help used to produce one unit of economic output. It is a kick-start economies of scale to accelerate deployment by proxy of the efficiency with which an economy is able giving priority to clean energy technologies in procurement to use energy to produce economic output. A lower processes and/or by establishing energy efficiency and ratio indicates that less energy is used to produce one renewable portfolio standards for energy providers. unit of economic output.

Many countries in the region have good solar radiation, The indicator for target 7.3 is energy intensity measured but many other renewable energy sources are unevenly in terms of primary energy and GDP (indicator 7.3.1): distributed meaning that the potential for development is different in each country. Hence the policy solutions In 2014, the Asia-Pacific region had the highest energy will also vary, depending on national circumstances and intensity compared to other regions in the world. However,

Box 2.4. Renewable energy policy of Malaysia

Malaysia, in 2001, recognized the importance of renewable energy and adopted it as the fifth fuel in the its energy supply mix, which also includes natural gas, oil, hydropower, and coal. During the tenth Malaysia Plan period (2011–2015), the country focused on implementing greenhouse gas mitigation measures. Among the measures introduced were the Renewable Energy Act in 2011 and the implementation of the in feed-in tariff mechanism.

The Sustainable Energy Development Authority, established by the Government to promote renewable energy, set a target of 415.5 MW of additional renewable energy capacity by 2015.

Under the eleventh Malaysia Plan, the Government has set a target for renewable energy capacity to reach 2,080 MW, thereby contributing 7.8 per cent of total installed capacity in Peninsular Malaysia and Sabah. Strategies have also been identified to boost renewable energy capacity. For example, resource assessment and mapping studies are being conducted to identify new sources, such as wind, geothermal and ocean energy, to diversify the power generation mix.

To complement the current FiT mechanism, net energy metering will be implemented in the eleventh Malaysia Plan to encourage more renewable energy generation by prioritizing internal consumption before any excess electricity is fed to the grid. Net energy metering is expected to encourage manufacturing facilities and the public to generate electricity without any restriction on generation capacity. This will assist the Government’s effort to increase the contribution of renewable energy in the generation mix.

Source: APERC (2015). REGIONAL COOPERATION FOR SUSTAINABLE ENERGY IN ASIA AND THE PACIFIC 25

Figure 2.6. Asia-Pacific subregions’ experiences with declining energy intensities, 1990-2014

(Percentage) 6

0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

North and North-East Asia North and Central Asia South-East Asia South and South-West Asia Pacific ESCAP World

Source: ESCAP, asiapacificenergy.org; World Bank (2017). energy intensity has been decreasing, with a steep decline energy intensity. The decline can be attributed to several from 222 kgoe/$1000 GDP (2011 PPP) in 1990 to 145 factors: structural change in the economy; sectoral shifts of kgoe/$1000 GDP (2011 PPP) in 2014. In the region, industries; modal shifts in transport systems; urbanization; reduction in intensity took place at an average pace of and energy sector reforms (figure 2.7). Overall, energy 1.7 per cent per year from 1990 to 2014 (figure 2.6) and intensity has declined in all productive sectors, with the most countries achieved significant declines in primary residential sector as a notable exception.

North and North-East Asia North and Central Asia Pacific Figure 2.7. Energy intensitySouth measured and South-West in Asia terms of primarySouth-East energyAsia and GDPESCAP (2011 $ PPP) North and North-East Asia North and Central Asia

Turkmenistan South-East Asia South and South-West Asia Macao, China Uzbekistan Hong Kong, China 35 Bhutan Pacific ESCAP Sri Lanka Kyrgyzstan Lao People’s Democratic Republic 30 Russian Federation World NorthAfghanistan and North -East Asia North and CentralPapua New Asia Guinea Singapore 25 Iran (Islamic Republic of) PhilippinesSouth -East Asia South and South-WestNepal Asia 20 Tonga Kazakhstan Pacific 15 ESCAP Fiji China World 10 Bangladesh Mongolia 5 Myanmar Republic of Korea 0 Turkey ESCAP

Tuvalu Viet Nam

Indonesia Georgia Azerbaijan Cambodia Maldives New Zealand Japan Thailand Samoa Tajikistan Vanuatu World Pakistan Armenia Kiribati Solomon Islands India Brunei Darussalam Malaysia Australia

1990 2014

Source: ESCAP, based on data from World Bank Global Tracking Framework Report (2017). Note: No data was available for American Samoa, Cook Islands, French Polynesia, Guam, the Democratic People’s Republic of Korea, Marshall Islands, Micronesia (Federated States of), Nauru, New Caledonia, Niue, Northern Mariana Islands, Palau and Timor-Leste. 26 REGIONAL COOPERATION FOR SUSTAINABLE ENERGY IN ASIA AND THE PACIFIC

Moreover, even though regional energy consumption targets on the projected energy consumption relative to has increased rapidly since the early 2000s, total final business-as-usual scenarios or economic productivity. Still energy consumption data show that the Asia–Pacific region others have set specific energy consumption reduction has decoupled energy consumption from GDP growth. goals relative to the business-as-usual case. The energy savings potential in the Asia-Pacific region remains very high. Globally, energy intensity improvements Differences in national measures: An analysis of avoided nearly 12 exajoules of global total final energy intervention policies implemented in selected Asia-Pacific consumption over the period 2012-2014, equivalent countries indicates that there are large differences among to the combined final energy consumption of Brazil countries in terms of energy efficiency policies and specific and Pakistan in 2014 (World Bank, 2017). Reduction in measures. Some countries have introduced a broad intensity means that less energy is required for each unit range of policies, while other countries’ interventions have of economic output in a country. been very limited. In general, the policies and measures being implemented have been inadequate because of The IEA has estimated that 40 per cent of the emissions the following deficiencies: savings needed by 2050 to meet the targets under (a) Some countries have national strategies but no the Paris Agreement could be generated by energy legal frameworks for energy efficiency; efficiency. The Asian Development Bank (ADB) has (b) Only developed Asia-Pacific countries have estimated that a 1 to 4 per cent investment in energy implemented vehicle fuel economy standards. efficiency as a share of overall energy sector investment Common measures include labelling and fiscal could meet as much as 25 per cent of the projected incentives. Policies on energy efficiency in the increase in primary energy consumption in developing transport sector are not widespread; Asian countries by 2030 (ADB, 2013b). Comprehensive (c) Only a handful of countries have mandatory strategies for energy efficiency improvement should thus energy efficiency management programmes for be developed. However, several countries still have not industries; introduced policy interventions to tackle market failures (d) Several countries have implemented building and to remove other disincentives to adopting energy- energy codes for new and existing buildings. efficient technology. In addition, many countries’ market There is a very large variation, however, in terms interventions have not been adequate to completely of the stringency and enforcement of these codes. address the energy efficiency gap. These deficiencies are Codes are voluntary in several countries; indicative of the existence of barriers to energy efficiency, (e) Not all countries have implemented minimum which remain significant in the Asia-Pacific region and energy performance standards for electric are summarized below. appliances and equipment. Most countries have limited numbers of appliances and equipment At present, energy efficiency objectives include improve- covered in standards and labelling programmes; ments in economic efficiency and productivity, lower (f) The energy service company market is not fully dependence on fossil fuels, and the reduction of developed. Only a few countries have introduced greenhouse gas emissions. These concerns have brought support mechanisms for energy service company the technical and economic viability of energy efficiency activities. into sharper focus. Energy efficiency designs and technologies are Energy efficiency targets: Government commitments to progressing most notably in lighting, appliances, and improving energy efficiency are expressed in each country’s buildings. The resulting energy savings can contribute energy efficiency targets (table 2.2). Some targets are towards enhancing energy security in the region by pronounced as political aspirations, some are included in allowing fuel-importing countries to reduce the financial international commitments, and others are part of sectoral burden on energy consumers and the national budget; programmes or regulatory processes with well-planned decreasing the net import dependency; enhancing implementation strategies and enforcement mechanisms. energy exports for fuel-exporting countries; saving financial resources initially dedicated to building additional As table 2.2 shows, the metrics used in expressing national power-generating infrastructure through incremental targets vary from country to country. China, Japan and investment in energy efficiency technologies; improving New Zealand have recently established targets aligned the competitiveness of local industrial products and with their international commitments related to climate services on the domestic and international markets; and change mitigation. Other countries have based their mitigating adverse impacts on the environment. REGIONAL COOPERATION FOR SUSTAINABLE ENERGY IN ASIA AND THE PACIFIC 27

Table 2.2. Energy efficiency targets

Country Energy efficiency targets Australiab 40% improvement of energy productivity from 2015 to 2030. Azerbaijan Energy efficiency improvement by 20% by 2020. Brunei Darussalama 45% reduction primary energy intensity from 2005 to 2035. Cambodiaa Reduce final energy intensity by 10% by 2030. Chinae 15% intensity reduction from 2015 to 2020 (13th FYP). Hong Kong, Chinab Supports APEC target of 45% reduce of primary energy intensity from 2005 to 2035. Indonesiaa 1% reduction per year until 2025; various sectoral targets. Iran (Islamic Republic of) 50% energy intensity reduction between 2010 and 2020. Japanc 17% of electricity generation by 2030 from BAU scenario. Kazakhstan 25% reduction of energy intensity by 2020. Republic of Koreab 1.4% annual energy efficiency improvement from 2011 to 2035 Lao People’s Democratic Republica Reduce final energy intensity by 10% in 2025. Malaysiaa 10% reduction in energy intensity by 2030 (from BAU scenario). Maldives 7.5% savings in final energy consumption over 10 years until 2020. Myanmara Primary energy consumption reduction of 5% in 2020 and 8% in 2030 from BAU scenario. New Zealandd 1% industrial emissions intensity reduction from 2017-2022. Niue 10% electricity consumption reduction in residential, commercial and government buildings. Palau 35% increase in energy efficiency by 2025. Philippinesa 10% energy savings in 2030 relative to BAU scenario. Russian Federationb 40% reduction of energy intensity from 2005 to 2020. Singaporea Reduce primary energy intensity by 20% in 2020 and 35% in 2030 from 2005 levels. Sri Lanka Reduce annual energy demand growth by 2%. Thailandb 30% reduction of energy intensity by 2036 from 2010 level. Turkey 20% reduction of energy intensity by 2023. Viet Namb Savings in total energy consumption from 5% in 2011 to 8% in 2015. a IEA (2013) b APERC (2016) c Japan, Ministry of Economy, Trade and Industry (2015); d New Zealand, Ministry of Business, Innovation and Employment (2016) e WRI (2017)

Barriers to accelerating energy efficiency uptake: responsible for energy efficiency are not well Unlocking the region’s energy efficiency potential remains defined, resulting in overlaps and gaps. a challenge. Significant market barriers prevent consumers and firms from purchasing cost-effective energy efficient The barriers are sufficient to justify government policy equipment and appliances. The result is an energy interventions, including mandatory standards, labelling, efficiency gap in which the level of efficiency achieved is and other information programmes; financial incentives; lower than the level judged to be optimal at prevailing and funding and other mechanisms under public private market prices. Energy efficiency barriers include: partnerships. In chapter 4, some suggestions on what (a) Energy price subsidies remain prevalent in the these interventions might be are given. region, creating disincentives to new investments in energy efficiency; Rising pressures on consumption: Over the past four (b) Financing options are largely insufficient; decades, energy consumption in the region has increased (c) Financial stakeholders lack experience in and fourfold (IEA, 2016b) with fossil fuels the resource of knowledge of energy efficiency technologies, choice. With the population projected to reach 3.2 billion benefits and risks and the understanding and by 2050, the extension of energy services to underserved technical capacity to develop and implement locations and the growth of the middle class, the pressure energy efficiency projects; on energy supplies will increase. In response, the rate (d) Lack of information and asymmetries remain of energy efficiency uptake needs to be accelerated. At widespread among stakeholders; present, the degree of energy efficiency uptake varies (e) The roles and responsibilities of agencies substantially across the ESCAP subregions. 28 REGIONAL COOPERATION FOR SUSTAINABLE ENERGY IN ASIA AND THE PACIFIC

A key challenge in achieving higher efficiency levels is data coverage, new indicators need to be developed to target investments for smarter, more technologically to capture specific regional challenges and issues and advanced energy systems, particularly for those countries maintain a holistic approach to sustainable energy. that need to significantly develop their infrastructure to meet current and future demand. It is essential to accelerate the introduction of advanced technologies, power grid 5 upgrades and retrofitting of existing power plants. . CONCLUSION

The increase in the region’s total energy consumption The 2030 Agenda for Sustainable Development provides is mainly driven by economic growth in developing a new normative agenda for equitable development. countries. This effect might have been mitigated with more Reaping the benefits of sustainable energy and rational improvements in energy efficiency. The broad implementing the 2030 Agenda depends on how well implementation of national energy efficiency measures, governments make use of the opportunities provided such as priorities, targets and action plans, standards for by energy transition in addressing the three interlinked appliances, lighting and mechanical systems, labelling, targets of Goal 7: universal energy access; renewable support for energy service companies, energy efficiency energy deployment; and increasing energy efficiency. promotion campaigns and international cooperation, is Although progress has been made towards reaching still insufficient to address this issue. these targets, accelerated efforts are necessary to capture the full benefits of sustainable energy.

4. DATA COLLECTION Millions of people across the region continue to lack access to electricity and clean fuel and technologies, IN TRACKING PROGESS strongly affecting governments’ ability to tackle other TOWARDS SDG 7 development issues including the health and well-being of people, education, gender equality and the overall Gathering high-quality data that are vital for making reduction of inequalities. Although progress has been informed decisions and ensuring an accurate review of made in the last few years, and despite large-scale the implementation of the 2030 Agenda is a sector- deployment of renewables, the share of renewables in wide challenge. Tracking progress towards achieving the the energy mix remains low, exacerbating continued air Sustainable Development Goals requires the collection, pollution problems across the region and putting stress processing, analysis and dissemination of data and on emerging economies as a result of fluctuations in statistics at the subnational, national, and regional levels, oil prices. Furthermore, the rate of energy efficiency including those derived from official statistical systems uptake still needs to be accelerated in order to unlock and from new and innovative data sources. Many the immense cross-sectoral benefits. national statistical systems face serious challenges in this regard. As a result, accurate and timely information To accelerate progress in attaining SDG 7, countries about certain aspects of people’s lives are unknown, and across the region need to deal with a multitude of many development challenges are still poorly understood. policy, institutional, and financial barriers. Financial barriers The General Assembly in its resolution 70/1 called for are of particular concern as energy transition strategies increased support for strengthening data collection and require vast sums of investment. In order to bridge this capacity-building and committed to addressing the gap financing gap, governments need to leverage funds in data collection. Given this substantial gap, strong focus for increased private-sector investment, which requires should be placed on efforts to generate and collect more stability and predictability in policymaking and the reliable country data and information to monitor progress introduction of financing tools that help manage the towards achieving SDG 7, especially for countries with often high investment risk. special needs including small island developing States. Enhanced regional collaboration on capacity-building to Overall, weak coordination mechanisms among key implement SDG 7 should also be prioritized. To fill data stakeholders in the energy transition will continue to gaps and improve international comparability, countries hinder the implementation of SDG 7. Governments need to adopt internationally agreed upon standards need to strengthen their cross-sectoral processes and and the international statistical community needs to work partnerships at all levels in order to maximize the benefits closely with development partners and other stakeholders of energy transitions. In this regard, in chapter 3, options to strengthen national statistical capacities and improve for policymakers in developing coherent and integrated reporting mechanisms. Along with the improvement of energy transition strategies are introduced. REGIONAL COOPERATION FOR SUSTAINABLE ENERGY IN ASIA AND THE PACIFIC 29

ENDNOTES 1 New evidence-based normative guidance from WHO highlights the importance of addressing both fuel and the technology for adequately protecting public health. These guidelines provide technical recommendations in the form of emissions targets for fuel and technology combinations (stoves, lamps, etc.). These guidelines also recommend against the use of unprocessed coal and discourage the use of kerosene (a non-solid but highly polluting fuel) in the home. They also recommend that all major household energy end uses (e.g., cooking, space heating, lighting) use efficient fuels and technology combinations to ensure health benefits. For this reason, WHO guidelines define access to modern cooking solutions in the home as “access to clean fuels and technologies” rather than “access to non-solid fuels.” This shift will help ensure that health and other “nexus” benefits are better counted and thus realized. (World Health Organization, Guidelines for indoor air quality guidelines: household fuel combustion. More information available at http://www.who.int/indoorair/guidelines/hhfc/en/. 2 See http://gtf.esmap.org/. 3 Ibid. 4 See World Health Organization (WHO) (2014). Burden of disease from household air pollution for 2012 summary of results. Available from http://www.who.int/phe/health_topics/ outdoorair/databases/FINAL_HAP_AAP_BoD_24March2014. pdf?ua=1. 5 Based on a review of policies from the Asia-Pacific Energy Portal. Available from: asiapacificenergy.org. 6 Energy Access Practitioner Network and United Nations Foundation (2017). 2016 Survey Results: Distributed Energy Market Trends and Analysis (Washington). Available from http:// energyaccess.org/wp-content/uploads/2017/03/2017_EAPN_ final.pdf. 7 ESCAP. “Draft outcome document, seminar on supporting Sustainable Development Goal 7, target 7.1.” Bangkok, 21-23 June 2016. Available from https://sustainabledevelopment. un.org/content/documents/11336Seminar%20on%20SDG7_ Outcome%20Document_FINALv3%20CLEAN.pdf. 8 See Asia Pacific Energy Portal. asiapacificenergy.org 9 See http://www.irena.org/DocumentDownloads/Publications/ RE_stats_highlights_2017.pdf. 30 REGIONAL COOPERATION FOR SUSTAINABLE ENERGY IN ASIA AND THE PACIFIC REGIONAL COOPERATION FOR SUSTAINABLE ENERGY IN ASIA AND THE PACIFIC 31

CHAPTER 3 ENERGY TRANSITION STRATEGIES FOR ASIA AND THE PACIFIC 32 REGIONAL COOPERATION FOR SUSTAINABLE ENERGY IN ASIA AND THE PACIFIC

common debate in policy circles is whether market population growth and balancing consumption gaps forces alone can move the energy transition forward between urban and rural areas to address poverty A— the position taken by free-market advocates — or whether reduction. The objectives are much greater energy government interventions are necessary. Considering the efficiency and market penetration of clean renewable need to accelerate the energy transition, and the fact that energy and redistribution of the benefits in combating markets have both inherent and manufactured flaws, the poverty reduction. best governance is a strategic blend of market forces and public policies that fix or compensate for market Recent empirical data suggest not only that decoupling is imperfections. possible, but that it already is under way in the Asia-Pacific region and elsewhere. Certain countries have decoupled Building on the information presented in previous chapters, economic growth from greenhouse gas emissions, and this chapter offers a menu of options on legislative, recent empirical data also suggest a weakening in the regulatory, and programmatic initiatives that policymakers relationship between economic activity, energy demand can consider as they develop strategies to end poverty, growth and carbon dioxide emissions (IEA, 2016b). decouple energy demand from population and economic growth in the Asia-Pacific region, and participate in the Energy efficiency and primary energy demand: Primary international efforts to reduce greenhouse gas emissions. energy demand (PED) refers to the total energy The chapter begins by presenting various transition requirements of a country. Table 3.1 shows average annual scenarios for energy supply and energy demand, growth rates (AAGR) of primary energy demand in 2040 followed by options and case studies for developing compared to 2014 under three scenarios: current energy energy efficiency strategies, accelerating deployment of policies, current plus new policies; and more aggressive renewable energy and integrated variable renewable action to decarbonize energy demand. energy, and addressing energy access issues through decentralized solutions. It also examines different Current policies scenario: Under current energy policies, measures for strengthening implementation to ensure global PED growth would average 1.4 per cent annually that such a transition is economically viable, socially between 2014 and 2040. Average annual energy demand acceptable, environmentally sound and fits with national would be higher than the global rate in India and other priorities. developing Asian countries, about the same in China, and lower in Asian members of the Organisation for Economic Co-operation and Development (OECD) and the Russian 1. TRANSITION SCENARIOS Federation. In Japan, energy demand would decline.

Among the countries in the Asia-Pacific region, the World New policies scenario: If planned energy efficiency policies Bank projects growth in real GDP in the range of 6.0 including nationally determined contributions were added and 7.5 per cent between 2017 and 2019.1 GDP growth to existing policies, the average annual growth of PED traditionally implies parallel growth in energy demand would be lower than in the current policies scenario. and pollution. The goal of government policies should China would register the highest reduction in PED be to decouple energy demand from GDP growth while growth. OECD Asian countries would join Japan with minimizing the increase of energy demand caused by negative growth.

Table 3.1. Total primary energy demand scenarios (in Mtoe)

Current policies scenario New policies scenario Decarbonization scenario Region/country 2014 2040 AAGR (%) 2040 AAGR (%) 2040 AAGR (%) World 13 684 19 636 1.4 17 866 1.0 14 878 0.3 OECD Asia 857 889 0.1 842 -0.1 732 -0.6 China 3 070 4 512 1.5 3 892 0.9 3236 0.2 India 824 2 123 3.7 1 938 3.3 1 518 2.4 Japan 442 395 -0.4 381 -0.6 322 -1.2 Russian Federation 686 801 0.6 758 0.4 672 -0.1 Developing Asia 4 809 8 347 2.1 7 437 1.7 6119 0.9

Source: IEA, World Energy Outlook 2016. Note: Total primary energy demand corresponds to total primary energy supply. REGIONAL COOPERATION FOR SUSTAINABLE ENERGY IN ASIA AND THE PACIFIC 33

Decarbonization scenario: If the goal were net zero energy in 2040 than in 2014. The percentage of carbon emissions in Asia and the Pacific, all the countries renewables to satisfy PED without carbon emissions would studied would have to achieve significantly lower levels have to quadruple in OECD Asian countries; more than of growth in PED. The message here is that neither the double in China and the Russian Federation; and rise current nor enhanced energy policies planned would be more than fourfold in Japan. sufficient to decouple the countries’ energy use from carbon emissions. The conclusion, again, as with energy efficiency, is that the Asia-Pacific region requires far more aggressive policy Energy supply goals in renewable energy if countries of the region choose to decarbonize by 2040. These policies need to On the supply side, the amount of PED satisfied by take into account efforts aimed at accelerating access to zero-carbon renewable energy resources is an indicator energy services, both electrification and clean fuels and of progress toward decarbonization. Table 3.2 shows that technology. Moreover, efforts to improve energy access in 2014, the reference year, there was a wide range of across the region should not be limited to providing renewable energy penetration among the selected Asia- connection, as this is not a guarantee of reliable and Pacific countries. Only India, however, achieved a level affordable supply. Inadequate infrastructure and power of renewable energy greater than that in the global supply resulting in the interruption of supply is common energy mix. within the region, resulting in large economic losses.

Current policies scenario: In 2040, based on current energy policies, the growth of renewables to satisfy world 2. STRATEGIES TO IMPROVE energy demand would grow from 13 per cent to 16 per cent. The renewable energy share also would grow in ENERGY EFFICIENCY OECD Asian countries, China, Japan, and the Russian Federation. The contribution of renewables would drop The energy efficiency performance of the Asia-Pacific by more than half in India and by one percentage point region during the period 1990-2014 was remarkable, in developing Asian countries. with most countries achieving significant decreases in primary energy intensities. However, as noted in earlier this New policies scenario: With the addition of new policies, reduction can be attributed to several factors: structural several of the countries analysed in table 3.2 would changes in their economies; sectoral shifts of industries; achieve very significant increases in renewable energy modal shifts in transport systems; urbanization and energy over 2014, tripling in OECD Asian countries and more sector reforms (ESCAP, 2011). However, a handful of than doubling in Japan and the Russian Federation. economies in East Asia (Japan; Malaysia; Singapore; The contribution of renewables in India would remain Thailand; and Hong Kong, China) recorded increases in significantly lower than it was in 2014. energy intensity because of structural changes.

The decarbonization scenario: To decarbonize, all the Basic energy efficiency policy levers used in the Asia- studied countries would have to use far more renewable Pacific region can be broadly characterized as incentives,

Table 3.2. Share of renewable energy in total primary energy demand scenariosa

Reference year Current policies scenario New policies scenario Decarbonization scenario Region/country 2014 Mtoe share (%) 2040 Mtoe share (%) 2040 Mtoe share (%) 2040 Mtoe share (%) World 1 937 13 3 158 16 3 456 20 4 662 32 OECD Asia 47 5 113 12 120 15 181 25 China 349 11 535 12 646 17 848 26 India 209 25 275 12 304 17 445 30 Japan 23 6 57 14 60 15 87 27 Russian Federation 22 3 50 7 58 8 106 15 Developing Asian countries 791 15 1 141 14 1 325 18 1 828 30

Source: IEA, World Energy Outlook 2016. a Renewable energy includes bioenergy, geothermal, hydropower, solar photovoltatic, concentrating solar power, wind and marine (tide and wave). 34 REGIONAL COOPERATION FOR SUSTAINABLE ENERGY IN ASIA AND THE PACIFIC standards and penalties, and programmes to enhance Efficiency targets capacity and energy efficiency management. The energy savings potential in the Asia-Pacific region remains very Many developing countries did not introduce energy high. Even with advanced energy-saving technologies and efficiency policies until the 1980s, after being prompted a shift to low-carbon renewable energy as illustrated in by the oil crises of the previous decade. Green growth table 3.2, energy savings potential would remain significant objectives and climate change have emerged as by 2040 (IEA, 2016b). motivating factors since 2000 (ADB, 2013b; Doshi and Zahur, 2013). National objectives have grown to include Furthermore, with stronger cross-sectoral cooperation, improving business competiveness using energy security, energy efficiency measures can play a vital role in greenhouse gas reductions, improvements in energy supporting governments in broader social development. choice and reliability. Health and well-being, and, indeed, overall quality of life, can be improved through energy efficiency. For In the cases of countries that recently set new targets, example, measures, including improvement of insulation such as China (2016), Japan (2015), and New Zealand and heating systems in buildings can decrease instances (2016), targets are being aligned with their commitments of illnesses (colds or hot spells) as well as reduce mental related to climate change mitigation. illness. In fact, the impact has been shown to be strongest on the most vulnerable members of society, including Developing policies for energy efficiency children and the elderly (IEA, 2014). In addition, investment in energy efficiency has the potential to deliver additional Policies can be designed to advance energy efficiency in tax revenues, and actually lower the cost of unemployment ways or at speeds that markets alone cannot, or to help and social welfare programmes (IEA, 2014). markets work better by fixing their imperfections. Market imperfections can include prices that do not adequately Therefore, to improve energy efficiency at a greatly represent true costs, split incentives2 or insufficient accelerated pace, Asia-Pacific countries must close the consumer information. A good place for policymakers gap between optimal levels of cost-effective energy to begin in designing energy efficiency strategies is efficiency and what is achieved. This requires that countries to identify existing laws, regulations and fiscal policies overcome market barriers that prevent consumers and that influence energy consumption, reform those that companies from purchasing the most efficient equipment are counterproductive and implement new policies to and appliances. Barriers include market failures and fill critical gaps. Box 3.1 proposes a potential process imperfections; consumer attention to first costs rather than to establish or strengthen energy efficiency strategies life-cycle costs; attitudes, behaviours and misinformation; (ESCAP, 2011). and fiscal policies that discourage gains in energy productivity or reward inefficient energy consumption. In addition, many countries have used media to engage These barriers often require government interventions, the public in society-wide efficiency campaigns, which upgrades in national goals, and legal frameworks needed are often aimed at children to educate their parents to implement and enforce mandates. about energy waste. National campaigns build public

Box 3.1. How to establish or strengthen energy efficiency strategies

1. Identify major targets to ensure best impacts with least intervention. 2. Establish the baseline of energy consumption. 3. Identify the techno-economic energy saving potentials to set energy efficiency targets and prioritize actions based on their economic effectiveness. 4. Develop an implementation strategy in accordance with the resources available. 5. Outline the mechanism for implementing an action plan for each subsector. 6. Collect relevant data and parameters that allow monitoring and evaluating the effectiveness of energy efficiency measures to draw lessons. 7. Plan the next cycle by widening the scope of activities, retaining high-performing actions, and examining and modifying the underperforming programmes. REGIONAL COOPERATION FOR SUSTAINABLE ENERGY IN ASIA AND THE PACIFIC 35

Box 3.2. China’s 1,000 to 10,000 Energy-Consuming Enterprises Programme

During its eleventh five-year plan (2006-2010), China implemented the 1,000 Energy-Consuming Enterprises Programme, which covered the 1,008 largest energy-consuming energy enterprises in the country, each consuming more than 180,000 tons of coal equivalent (tce) per year (Price, Wang, and Yun, 2010). These enterprises were required to reduce their specific unit consumption as a contribution to the country’s target of reducing energy intensity by 20 per cent during the same period. The target energy savings for these enterprises amounted to 100 million tce. During the twelfth five-year plan, the programme was expanded to become the 10,000 Energy- Consuming Enterprises Programme, covering approximately 15,000 large enterprises, 160 large transportation enterprises and 2,000 buildings, hotels, and enterprises that consume more than 5,000 tce per year, each. These enterprises were required to set up energy monitoring systems, carry out energy audits to identify opportunities for reducing energy intensities, prepare energy efficiency plans and submit yearly reports to the government (Fawkes, Oung and Thorpe, 2016). The required energy savings target for this programme was 250 million tce by 2015.

Enterprises that failed to meet their targets under the programme were subject to reproach (Fawkes, Oung and Thorpe, 2016). A notice of criticism would be issued, threatening that official approval of any capital projects or additional industrial land-use requests could be suspended and that economic sanctions might be applied. For State-owned enterprises, other State agencies could pressure leadership and management to comply. Provincial and local government departments were also assessed based on the collective energy performance of enterprises under their jurisdiction. If targets were not achieved, government officials became ineligible for rewards, honorary titles, and/or promotion.

Financial incentives were provided for energy-saving projects based on a fixed payment 200 yuan (Y) ($29) per ton coal equivalent saved per year. No incentives were provided for supporting activities, such as conducting energy audits, training, or implementing energy management systems. Considerable effort was put into capacity- building through structured training programmes. understanding about the material benefits of energy mandatory measures that have been effectively introduced productivity, invite consumers to become personally in several Asia-Pacific countries are listed below: involved in a national effort to improve public health while • Energy performance targets that oblige enterprises saving money, and educate consumers about what they to achieve performance levels within a timeframe can do in their own lives to use energy more efficiently. (example in box 3.2). • A mandate for enterprises to use international Policies and programmes with the most reliable results standards for energy management and auditing are those that are mandatory, or based on legally binding (example in box 3.2). agreements with realistic long-term targets (see box 3.3 • A requirement that each enterprise appoint a certified and box 3.4). Mandatory programmes can require facilities energy manager. (example in box 3.4). to develop implementation plans to achieve the targets • A requirement that industrial users submit data on and to regularly monitor and report progress, backed energy consumption or carbon emissions or both of with a real threat of increased government regulation or them (example in box 3.4). penalties if the targets are not achieved. Some of the • A requirement for enterprises to trade energy

Box 3.3. The Australian Energy Efficiency Opportunity Programme

The Energy Efficiency Opportunity programme, which was implemented between 2006 and 2014, required all large organizations to identify, evaluate, and report cost-effective opportunities for improving energy efficiency (Fawkes, Oung and Thorpe, 2016). Under this programme, enterprises that consumed more than 0.5 PJ of energy per year were required to carry out an energy audit. The energy assessment undertaken was in line with the legislated Energy Efficiency Opportunity Assessment Framework involving seven stages. To ensure compliance, technical support tools were developed, such as training and seminars, case studies, industry guidelines, a guide to energy saving measures, an assessment handbook and template assessment plan, a verifier’s handbook, and a website, newsletter and FAQs. The opportunities derived from the programme were found to account for 2.7 per cent of the country’s annual energy consumption. Close to 54 per cent of the identified opportunities were implemented by enterprises, generating savings of 89 PJ and financial benefits of $A 808 million ($605 million) per year. 36 REGIONAL COOPERATION FOR SUSTAINABLE ENERGY IN ASIA AND THE PACIFIC

Box 3.4. Mandatory energy audit and energy managers in India

The Energy Conservation Act of India of 2001 (amended in 2010) requires large energy-intensive industries and other larger consumers (also known as designated consumers) to have an accredited energy auditor conduct energy audits, to designate or appoint an energy manager, and to report energy consumption annually (Fawkes, Oung and Thorpe, 2016). The Bureau of Energy Efficiency provides certified energy examinations for energy auditors and managers. To become a certified energy manager, candidates need to score at least 50 per centin three examinations on the following topics: (a) general aspects of energy management and energy audit; (b) energy efficiency in thermal utilities; and (c) energy efficiency in electrical utilities. To become an energy auditor, candidates take a fourth examination on energy performance assessment for equipment and utility systems and need a score of at least 50 per cent to pass.

savings for compliance purposes (example in box 3.5). (pricing that does not reflect the true life-cycle costs of • Energy audits that require parties to audit energy each resource), most renewable energy technologies performance to identify opportunities for improvements cost more than conventional energy technologies even (example in box 3.5). under optimal market conditions. However, renewable • Other policies and measures to enforce these energy prices have declined significantly in the past requirements. decade, as market penetration has allowed economies of scale, manufacturing improvements, technological advances, and increased competition (REN 21, 2016). In 3. STRATEGIES FOR RENEWABLE addition, there are country-specific barriers that hinder deployment. These barriers can be broadly classified ENERGY DEPLOYMENT as regulatory and policy uncertainty, institutional and administrative barriers, market barriers, financial barriers, The potential for renewable energy deployment in infrastructure barriers, a lack of skilled personnel, public the region remains very high, along with the need to acceptance and environmental issues (Müller, Brown significantly increase its contribution to the energy mix. The and Ölz, 2011). Barriers that exist in each country or International Renewable Energy Agency (IRENA) estimates region are different as the techno-economic, market, and that with higher energy efficiency, modern renewable institutional conditions are diverse. In South-East Asia, energy technologies and deeper structural changes, the infrastructure and grid-related issues, and regulatory and share of clean energy in the global energy mix could administrative hurdles are the major impediment to the double by 2030 and put the world on the path to a deployment of renewable energies (Ölz and Beerepoot, carbon-free energy system in the next 50 years. Under 2010). Non-economic barriers have high economic the energy policies in place in 2016, renewable energy impacts by increasing the return on investment required would account for only 21 per cent of the global energy by financiers and the high-risk premiums required by mix (IRENA, 2016a). investors. For example, visual impact and noise remain as concerns associated with wind turbines in some While resource mixes differ in each country, one of locations; concentrating solar power consumes water the major barriers common to all countries is techno- that in some regions may not be available; and in some economic: the fact that, by conventional pricing standards jurisdictions, the major cost of a solar installation is not the

Box 3.5. India’s Market-based Perform, Achieve, and Trade Scheme

This scheme was first announced in 2008, but its first phase, which covered 478 facilities and eight energy-intensive sectors, was implemented over the period 2012-2015. Under this scheme, each covered facility was given a mandatory specific energy consumption target with its baseline target determined based on historic consumption during the period 2007-2010. Facilities making greater reductions than their targets are issued energy savings certificates, which can be traded with those facilities that are having difficulty in achieving their targets orbanked for future use.a The scheme is administered by the Bureau of Energy Efficiency. Data used in the baseline analysis and in estimating energy savings are verified by a designated energy auditor. Trading of the certificates between designated consumers is administered by Energy Efficiency Services, Ltd.

a See https://www.powerexindia.com/PXIL/images/uploads/20160617_100901_Trading_ESCERTS.pdf. REGIONAL COOPERATION FOR SUSTAINABLE ENERGY IN ASIA AND THE PACIFIC 37 hardware but the transaction costs related to permitting, To avoid this dilemma, investors may decide to repair financing, and grid connection. Policy measures, such rather than replace existing pipelines, powerlines and as simplified administrative requirements, government power plants, incorporate early exit strategies into their loan guarantees, or loan-loss reserves can overcome investment plans, finance technologies to reduce or some of these barriers. In this connection, the Electricity manage greenhouse gas emissions from burning fossil Governance Initiative3 has led to the development of a fuels or design for retrofit. However, the committed governance framework organized around the principles of carbon/stranded investment dilemma must become part transparency, accountability, stakeholder participation, and of infrastructure planning during the energy transition. capacity that should guide the development of robust policy and planning processes, transparent procedures To initiate and sustain rapid deployment of renewable for the selection of projects and setting of prices, and energy technologies, stable and predictable enabling clear performance metrics for monitoring and evaluation. policies and regulatory frameworks are vital. They should include at least four elements (G20, 2015): Large-scale renewable energy systems (a) A long-term policy framework expressing government commitments with credible targets in There are several types of renewable energy resources the short, medium and long-term, and supported and technologies. Large-scale systems, such as renewable by action plans designed to remove barriers; power plants with capacities ranging from 1 MW to 1 (b) Smart remuneration arrangements that provide GW, supply power to end users through transmission long-term predictable revenue streams and and distribution systems. Due to economies of scale, include built-in flexibility to minimize policy costs these technologies have lower per-unit costs than smaller by allowing the costs to decline; systems. (c) Actions such as streamlined planning and permitting and workforce development to tackle The next evolution of power grids is the “smart grid”, which non-economic barriers; uses two-way digital communication and computer-based (d) Measures to enable technical and market remote controls to detect and react to local changes in integration once deployment grows. power use. Smart grids allow electric utilities to increase energy efficiency by adjusting and controlling power use Policy measures to address economic barriers for large- from single devices or millions of devices. scale renewable electricity systems include feed-in-tariffs,4 quota obligations, tradable certificates (linked to quota Infrastructure investment obligations), tendering schemes (reverse auctions), tax incentives, and grants and rebates. Measures implemented The dilemma of stranded assets deserves to be highlighted in Asia-Pacific countries for both large-scale and distributed in the context of large-scale renewable energy systems. systems are summarized in table 3.3. Measures vary by As new energy infrastructure is built or existing energy country but remarkable differences are evident between infrastructure is repaired and modernized, public and countries that have stepped up deployment and those private investors must deal with the dilemma of committed that have not. In general, while they vary by country, the carbon versus stranded investment. policy measures implemented in many countries have been inadequate. Traditional energy infrastructure, such as oil and gas pipelines, transportation systems, electric grids, and Smart grids to increase deployment of variable power plants are designed to last for 40, 50, or even renewable energies 100 years. To repay their investments and earn profits, investors expect these systems to operate until the end Asia-Pacific countries have experienced a large of their useful lives. Infrastructure built to serve fossil fuels deployment of variable renewable energy technologies. becomes a de facto commitment to using oil, gas or Variable renewable energy technologies are those coal for decades. That is “committed carbon.” whose output at any time depends on the availability of fluctuating renewable energy resources, such as sunlight On the other hand, if government regulations, market and wind. The outputs of these generators are only partly forces, and competition from carbon-free energy signifi- controllable as output can only be reduced. Fossil fuels cantly reduce the use of fossil fuels, the infrastructure generators on the other hand, can vary their output to can become obsolete before the end of its design life. meet the demands of the grid operator, within their It becomes a “stranded investment” for the taxpayers, technical limits. Utilities and grid operators must manage ratepayers or private investors who financed it. an increasing level of variable renewable input while 38 REGIONAL COOPERATION FOR SUSTAINABLE ENERGY IN ASIA AND THE PACIFIC

Table 3.3. Policy support for renewable energy in Asia-Pacific countries

Regulatory Policies Fiscal Incentives and Public Financing

Country Targets payment FiT/premium RPS Quota/obligation/ Net metering/ billing rebate grant, subsidy, Capital taxInvestment or production credit energy in sales, Reduction or other taxes VAT payment production Energy loans, investment, Public grants payment production Energy loans, investment, Public grants

HIGH INCOME Australia R Φ O O x O R R Japan R R O O R O O Republic of Korea O O O O O O O O O New Zealand O Φ O O O Russian Federation O O R O Singapore R O O O UPPER-MIDDLE INCOME Azerbaijan O O China R R O O O O O O O Fiji O O O Iran (Islamic Republic of) O O O O O O Kazakhstan O O O O Malaysia O R O O O Maldives O O O Marshall Islands O O Mongolia R O O x Palau O O Thailand R R O O O Turkey R O x O O O LOWER-MIDDLE INCOME Armenia O O Bangladesh R O O O O India R O O R O O R O O O O Indonesia R O O O O O O O Kyrgyzstan O O O Micronesia (Federated States of) O Φ Myanmar R O Pakistan O R x O R O O Philippines O R O O O O O O O O Sri Lanka O O O O O O O O Tajikistan O O O O Uzbekistan O Vanuatu R O O Viet Nam O O O O O O LOW INCOME Nepal O O O O O O O O

Source: REN 21, 2016. Note: O – existing national (could also include subnational); R - revised (one or more policies of this type) ; Φ – existing sub-national (but no national); x – new (one or more policies of this type). REGIONAL COOPERATION FOR SUSTAINABLE ENERGY IN ASIA AND THE PACIFIC 39 maintaining frequency and voltage. The grid stability wholesale electricity prices (IRENA, n.d.). Participants in issues are more pronounced in smaller grids than in an ESCAP workshop on transboundary power trading large integrated grids. reported that power system interconnections in Western Europe lowered generation capacity costs by as much The rising popularity of variable renewable energy as 10 per cent (ESCAP, 2015). technologies is one reason that investments in “smart grids” must be part of the energy transition. A smart An additional option in infrastructure development is grid is an electricity network that uses digital technology to transmit high-voltage direct current to reduce the to monitor and manage the movement of electricity amount of electricity lost in transmitting alternating from generation sources to meet the varying electricity current. For example, China has constructed close to demands in its service area. Smart grids can incorporate 16,000 kilometers of ultra-high-voltage power lines energy storage technologies that bank solar and wind since 2009 and set plans to invest an additional $88 power for use at night or on cloudy or windless days. billion in the power lines between 2010 and 2020.5 The Transboundary power trading enabled by interconnected China-based Global Energy Interconnection Development transmission infrastructure allows grid operators to adjust and Cooperation Organization (GEIDCO) has reached to intermittent power by moving electricity from where agreements with Japan, the Republic of Korea and the it is not needed to where it is needed. Russian Federation to build an interconnected Asian super grid that would move renewable power generated in A smart grid involves a complex arrangement of infra- the Gobi Desert in northern China to load centres as structure whose functions depend on many interconnected far east as Japan. GEIDCO envisions an eventual grid elements. The system can be visualized as having four main that would interconnect the entire world. layers whose elements are combined to improve the grid’s ability to achieve certain goals, such as integrating more Greater integration of variable renewables can be achieved renewables, improving reliability, and reducing energy through the interaction of key elements in an integrated consumption (Madrigal and Uluski, 2015). The first layer is smart grid: energy storage and transboundary power the “hard” infrastructure that is the physical component of trading, including market mechanisms, demand response the grid. This covers generation, transmission distribution technologies, and information technologies. As defined networks and energy storage facilities. The second layer above, a smart grid is an electricity network that uses is the telecommunication services that monitor, protect digital technology to monitor and manage the movement and control the grid. This includes wide area networks, of electricity from all generation sources to meet the field area networks, home area networks and local area varying electricity demands of end users (IEA, 2015a). networks. The third layer is data management to ensure proper data mining and utilization of data to facilitate Considering the required level of investments and the smart grid applications. The fourth layer consists of tools evolution of technologies, the deployment of smart and software technologies that use and process the grid technologies should progress on an incremental information collected from the grid to monitor, protect, basis. The development of a smart grid road map is and control the hard infrastructure layer and to allow therefore critical (box 3.6). The road map could vary integration of renewable energy. from one country to another, influenced mainly by each individual country’s objectives (Kimura, Pacudan Integrating variable renewable energy technologies can and Phoumin, 2017). If the main objective is greater increase grid infrastructure costs if the variable renewable renewable energy deployment, smart grid technologies resources are located farther from demand centres than would facilitate higher integration of renewables in the alternative power resources; the operational costs of transmission and distribution system. On the other hand, existing power stations are increased; or additional capacity if the objective is to improve energy efficiency, then is required to ensure that peak demand is satisfied. On smart metering and other demand response technologies the other hand, variable renewable energy technologies would be most important. Road mapping requires more can reduce grid costs and grid losses if these resources intensive intergovernmental agreement (discussed in are located close to demand centres, such as solar chapter 4), regional mechanisms to enable power trade photovoltaic systems on rooftops; if they improve the and institutional structure to guide appropriate policy operation of existing power systems such as by providing setting. frequency control and ancillary services; if they reduce the additional capacity necessary to ensure that peak To achieve a fully functioning smart grid that facilitates an capacity is satisfied, such as when solar photovoltaic interaction between variable energy supply and flexible output matches air conditioning loads; and if they reduce demand, strong policy and regulatory intervention is 40 REGIONAL COOPERATION FOR SUSTAINABLE ENERGY IN ASIA AND THE PACIFIC

Box 3.6 Smart grid road mapping

• Step 1: Establish a vision and identify pillars. Under this stage, the long-term vision for smart grids is established, which is based on energy sector goals. Also, key roles and responsibilities are defined. • Step 2: Establish a timeline and goals for each phase. The timeline, either incremental or phases, for achieving smart grid vision is established. • Step 3: Establish pillars of action. Pillars of action are established based on the road map vision. Also under this stage, risks, costs, and potential barriers are analysed. • Step 4: Propose technology and functional applications. Under this stage, policies, regulations, and technology for each period and each pillar are suggested. The challenges associated with the implementation of a smart grid are addressed. • Step 5: Develop metrics and monitoring. This stage develops smart grid performance metrics to measure the success of implementation.

Source: Madrigal and Uluski, 2015. required to do the following: incentivize consumers to partnerships or through special funding schemes, such become producers of variable renewable electricity supply; as government grants (Madrigal and Uluski, 2015; World encourage utilities to invest in standardized smart grid Economic Forum, 2010). The widespread deployment of technologies; and get consumers to modify consumption smart grid technologies could also reduce the utility’s patterns in response to time-differentiated pricing schemes electricity sales and affect the service provider’s financial (Kimura, Pacudan and Phoumin, 2017). viability. These impacts may require special regulatory treatment for utilities to ensure their viability, including a Policies providing incentives to consumers to invest in lost margin recovery scheme and various cost recovery variable renewable energy technologies, include FiTs, net and performance incentive programmes (Madrigal and metering and net billing schemes. Utility investments on Uluski, 2015). Smart grid benefits can be optimized proven and largely tested smart grid technologies could when customers are fully aware of incentives or service be considered part of utilities' expenditure programmes, options that warrant behavioural changes. This would be and investments in deployment could be recovered the case for industrial customers and, to some extent, through electricity tariffs. On the other hand, for less-tested commercial customers in cases in which knowledge about technologies, funding needs to come from public-private energy management is high. Residential customers on the

Box 3.7. China’s Smart Grid Road Map

The State Grid Corporation of China developed a road map which aims at constructing a smart grid system with ultra-high voltage lines and subordinate grids coordinated at various levels. Its technology will be IT-based, automated, interactive, management-conglomerated, intensive, streamlined and standardized. The road map consists of three phases.

• Phase 1. Planning and pilot. This phase has been completed. Grid specifications were set and several pilot programmes took place. • Phase 2. Rollout of Construction. This includes constructing the ultra-high voltage grid and rural/urban distribution networks, establishing the preliminary smart grid operation and control systems, and implementing the extensive use of key technologies. • Phase 3. Improvement. Grid construction to be completed during this phase. Progress is to be evaluated regularly.

Since 2009, SGCC has started 228 demonstration projects in 21 categories across 26 provinces and municipalities. The projects include integration of clean energy, energy storage and micro-grid technologies; superconducting transmission; smart substations; distribution automation; electricity quality monitoring; customized power service; power consumption information systems; smart communities/buildings; EV charging and battery-switching facilities; smart streetlamp monitoring systems; interactive service centres; smart demand management; and fault management systems.

Source: SGCC, 2010; Madrigal and Uluski, 2015. REGIONAL COOPERATION FOR SUSTAINABLE ENERGY IN ASIA AND THE PACIFIC 41 other hand are most often not aware of service options of vast electrical grid infrastructure for the exchange or pricing options needed to manage their demand. of power. The Republic of Korea envisions the grid to Smart grid customer policies could include feedback be part of its technology development and industriali- policies, time-of-use pricing and customer protection (IEA, zation process; the smart grid deployment in Japan is 2011b). part of the Government’s technology development thrust that has carried out large-scale demonstration projects China, India, Japan and the Republic of Korea have partly funded by the Government and the utilities. recently invested in the development of smart grids. For China and India, improving system efficiency and reliability are the main drivers; Japan and the Republic 4 of Korea are focusing on reducing greenhouse gas . DISTRIBUTED AND emissions, improving efficiency and increasing the DECENTRALIZED ENERGY renewable energy share. The smart grid programme in China was initiated by the State Grid Corporation of China GENERATION (SGCC). It initially is focusing on a smart transmission system and part of the power development expansion Distributed renewable energy generation consists of programme, with funding from the public sector. In individual energy-using devices or smaller power systems 2016, China launched GEIDCO, with the objectives to up to 1 MW located at or near the point of consumption, establish a global energy interconnection system that usually connected to the low voltage distribution network. meets global demand for electricity in a clean and Decentralized generation systems are stand-alone power green way, to implement the United Nations Sustainable systems that service rural and remote locations that are Energy for All and climate change initiatives, and to not near national utility grids. Solar photovoltaics are the promote sustainable development. GEIDCO facilitated a most common technology for individual energy solutions memorandum of understanding on the Asian Super Grid (solar home systems, solar lanterns, charging stations and in East and North-East Asia in March 2016 with SGCC, other pay-as-you-go systems) as well as for micro-grids the main utility and power provider in the Republic (20-100 Wp providing direct current power) and mini-grids of Korea, Korea Electric Power Corporation, Japanese (2-150 kWp systems supplying AC electricity).6 Local grid renewable energy developer Softbank, and Russian grid systems were developed in the past where hydropower operator PJSC ROSSETI. The proposed grid in the East resources were available. Modern mini- and micro-grids and North-East Asia subregion is a highly developed were developed and available for off-grid solutions, electrical grid that integrates various energy sources, such as solar, wind energy technologies, geothermal including renewable energy, and relies on the construction technologies and internal combustion engines using

Box 3.8. Business models in the Republic of Korea

The Ministry of Trade, Industry, and Energy of the Republic of Korea introduced six new energy-related business

models in July 2014, based on emerging business models, to reduce CO2 emissions and increase energy efficiency. It also established the Energy Efficiency and Climate Change Bureau for more efficient policy support. Plans for research and development and related technology and regulation reforms were announced in December 2014 and April 2015.

The six business models focus on reducing demand for fossil-fuel electricity and increasing research and development investment needed for related technologies, such as carbon capture and storage, energy storage system and energy management systems: 1. A demand management service that collects and sells to the electricity trading market. 2. An integrated energy management service that connects finance, insurance, and an energy management system and provides system maintenance for companies. 3. An independent micro-grid that replaces diesel generators with NRE generators and an electricity storage system. 4. The rental of photovoltaic equipment to households, financed by electricity savings. 5. A paid recharging service for electric vehicles. 6. Used-heat recycling from thermal power plants, which makes use of used heat in diversified farming.

Source: APERC, 2016. 42 REGIONAL COOPERATION FOR SUSTAINABLE ENERGY IN ASIA AND THE PACIFIC biofuels, biomethane and producer gas. There are also Local grids can be owned and operated privately or by some hybrid systems for off-grid solutions. If off-grid village institutions; managed by local governments or systems are to provide power during nighttime hours and be community-managed systems operated by licensees/ cloudy days, some type of energy storage component, franchisees. In cooperative and community-managed typically batteries, is required. systems, community involvement gives a sense of ownership and local support, but common problems include the lack The most popular on-grid distributed generation in of operational and financial management skills for complex urban areas is rooftop solar photovoltaic. In areas that projects (Bhattacharyya and Palit, 2013). This highlights the lack access to electricity, solar-photovoltaic systems are multidimensional role private sector investment can play often the least expensive and quickest way to provide in the rural energy sector: investors not only bring in the modern power. However, distributed and decentralized necessary financing, but, depending on the model, can energy systems generate some concerns. Electric utilities introduce more professional operation and maintenance cite challenges related to the variability of solar and wind of the local system. power; reverse power flows and elevated voltage levels on local networks; potential loss of revenue; loss of control An added benefit of distributed energy is its potential over generation assets; and negative perceptions about for spurring the creation of local enterprises and jobs. technology costs and performance. In some jurisdictions, For example, one programme, known as the “Barefoot non-solar electric customers have objected to paying for College”,7 trains semi-literate and illiterate women from the maintenance of a grid that solar customers can use developing and less-developed rural areas to maintain to reduce their energy bills. solar lighting after six months of training in India. Rural households typically pay between $5 and $10 Rural areas each month for solar lighting, about the same as they spend on kerosene, candles, and flashlight batteries. Accelerating the deployment of distributed and The programme which began in India, reportedly has decentralized systems in rural areas requires increased expanded to 25 countries. government commitments to off-grid renewable energy. Off-grid micro/mini-grids from renewable energy will play The following policies can help increase the use of an important role in providing energy access to rural distributed renewable energy generation in Asia and areas and remote communities. the Pacific (UNFCCC, 2015; Kimura and others, 2016): • Build and strengthen in-country human and institutional Governments can help develop off-grid markets by capabilities to develop, transfer, deploy, and operate creating stable and predictable policies: distributed renewable systems. • Develop realistic and long-term plans and targeted • Ensure the active participation of, and effective support of the plans; collaboration among, all stakeholders including private • Reducing subsidies for fossil fuels; sector, financing institutions, public sector and local • Fostering innovation and localized solutions; communities. • Widening access to local level finance by setting • Extend more assistance and technology improvement, minimum requirements for mechanisms such as green if necessary, for electric utilities to accommodate the lending by banks; intermittency of solar and wind energy. • Addressing administrative challenges, such as unclear • Implement transparent, effective policy and regulatory policies, a lack of coordination among different frameworks, such as: institutions and corruption. o FiTs schemes and self-consumption incentives (net metering and net billing). Key policy actions include those listed above (IRENA, o Grid connections, such as network access 2015a) and supporting building developers in the developed for the mobile phone industry to shift identification of villages not expected to be served by the the grid connection procedure from end users national grid in the short- to medium-term; producing a of distributed generation systems to the product regulatory framework to support integration of mini-grids manufacturers and installation and maintenance with main grids; customizing mini-grids to accommodate service providers. varying cultural, business, financing and technology o Retail tariff pricing to provide incentives for characteristics; creating flexible and transparent tariff- distributed generation, together with a cost setting mechanisms to take into account differing rural allocation mechanism to avoid impacts on the contexts; and helping to provide power continuity if and utility’s ability to recover investment costs on the when the conventional grid arrives. grid and conventional power generation assets. REGIONAL COOPERATION FOR SUSTAINABLE ENERGY IN ASIA AND THE PACIFIC 43

o Simplified permit processes, financing, and other By producing electricity close to its end user, distributed requirements. In many places, these transaction systems can reduce the cost of building and maintaining costs are more of a barrier to distributed solar the conventional grid’s transmission and distribution lines; than the costs of the systems themselves. reduce electricity losses that occur as electrons are moved • Stimulate robust private-sector involvement and over larger distances; and help prevent grid congestion. investment with appropriate incentives and facilitate the implementation of effective and proven business For the financial and investment community, concerns models. This includes: include a lack of certainty about government energy o Tax credits that help make residential solar leasing policies, financial returns, business risks, high initial costs, financially feasible. competition from subsidized fossil fuel sources and o A qualified installation workforce with certification consumer acceptance. Governments may be worried about system as well as standard systems for equipment grid access rules, equity and distributional impacts and and services. the allocation of costs and benefits. Some consumers are • Defining and regulating innovative financing mecha- concerned about whether their power bills will go up, nisms, such as web based financing to raise small the upfront costs of buying and installing solar energy funds for small investment projects such as distributed systems, how to finance the systems and whether roofs generation systems. have structural capacity to handle the weight of solar panels.

These local grids can be connected to the conventional Despite these concerns, there are many distributed solar electric grid for backup power when it is necessary. photovoltaic systems in several Asia-Pacific countries. The Depending on local policies, distributed generation most common policy frameworks include FiTs, net billing systems can earn credit from utilities for the excess schemes (Australia) and net metering schemes. So far, power they put back into the grid. Grid integration can the Asia-Pacific region has shown relatively little interest increase the diversity of supply and improve system in business models that are popular, for exampline, in resilience and enhance energy security (UNFCCC, 2015). North America, such as solar leasing, solar power purchase A third option combines the first two, allowing a local agreements, solar shares, community-shared solar, and grid to detach from the conventional grid during power roof rental. Solar leasing has been used in Singapore. interruptions. This is an especially important arrangement for critical operations, such as hospitals, first responder Different business models are recommended for and emergency service facilities, sanitation and water distributed power systems, depending on where they systems, and military installations. are deployed (box 3.9). One lesson learned while

Box 3.9. Business models for micropower in South Asia

o Grameen Shakti, a non-profit company, has promoted solar home systems in Bangladesh through a microfinance- backed system. Following the example of Grameen Bank, Grameen Shakti has created a rural network of decentralized branches throughout Bangladesh and has developed a sales strategy for consumers’ access to finance. Consumers make an initial down payment and repay the rest of loan over time at a low-interest rate. By 2012, Grameen Shakti installed more than one million solar home systems in Bangladesh, recording an eightfold growth in sales between 2007 and 2012. The total solar home system installation figure increased to 2.6 million by November 2013. o SELCO, a private social enterprise in India, has used a “lease-to-own” approach to promote solar home systems in southern India. Although it does not provide financing to its customers, SELCO supports its customers in securing loans through third-party financing, such as Renewable Energy and Energy Efficiency Partnership (REEEP) funding, to cover the down payment requirement for securing a loan. It has been successful in installing 135,000 solar home systems since 1995. o Husk Power System, a small start-up company based in Bihar, India, has electrified about 300 villages and hamlets since 2007 by setting up 80 plants that benefit nearly 200,000 people. Husk Power Systems builds village-scale mini-grids using rice husk gasifiers, usually ranging between 30- and 200-kW systems. The company works only in locations where at least 250 households agree to take connection and it charges a nominal installation charge as well as a regular fee for electricity, sometimes 45 Indian rupee (Rs) ($.70) per 15 W CFL. It charges a higher rate for commercial use than for residential use. Some of its plants have generated 40,000 Rs monthly revenue from tariffs, considerably greater than average expenses of between 20,000 and 25,000 Rs/month.

Source: Bhattacharyya and Palit, 2013. 44 REGIONAL COOPERATION FOR SUSTAINABLE ENERGY IN ASIA AND THE PACIFIC implementing various business models across countries and provide indirect uses of renewable energy, such is that each business model is unique and cannot be as heat supplied from biomass-based district heating. replicated easily in other countries — each country’s Principal uses in the building sector are heating and market conditions and economic realities are different cooling. Renewable energy in the transportation sector (IRENA, 2015a). There are some common challenges, typically is focused on road transport, electric vehicles however, such as a lack of available maintenance facilities, and biofuels, although there is potential to increase the inadequate capacity among local technicians and real use of biofuels in shipping and aviation. or perceived credit risks for financiers and solar home system dealers (Palit and Chaurey, 2011). Heating and cooling

Financial models for distributed systems Most European countries have heating and cooling targets for industrial heat. In the Asia-Pacific region, Thailand has There are several ways that consumers can acquire introduced production targets for bioenergy, municipal building integrated or stand-alone power systems. They solid waste and biogas for industrial heating. The city can pay cash to retail outlets, rent the systems from energy of Chandigarh in India has introduced mandatory use service companies, lease the equipment from an energy of solar water heating in industries, hotels, hospitals, savings company or solar company, or get funds from prisons, canteens, housing complexes, and government microfinance programmes. These business models have and residential buildings. Australia has introduced a grant been tested and successfully implemented in different scheme for renewable heat in industrial processes. subregions in Asia and the Pacific. In other parts of the world, cities allow homeowners and business owners to Mandates that establish minimum requirements for borrow funds at low interest rates and repay them with renewable energy’s contribution to heating and cooling special charges on their property tax bills. Some utilities include: offer a similar service known as “on bill financing” in • Performance-based incentives such as renewable which loans are repaid on monthly utility bills. heating/cooling production incentives; • Grants and direct subsidies; If none of these options are affordable for or available • Tax incentives; to new residences or businesses, or if owners want to • Soft-cost reduction programmes; wait until the price of solar drops more, buildings can • Low-interest loans or revolving loans. be designed for inexpensive retrofit later by orienting roofs for optimal insolation and pre-wiring for rooftop Transportation photovoltaic systems. Most industrialized countries have introduced targets in terms of the shares of biofuels to the total transportation 5. PROMOTING DEPLOYMENT demand. In the Asia-Pacific region, countries that have set those targets include Indonesia, Sri Lanka, and Viet Nam. IN END-USE SECTORS In Thailand, the targets relate to the production capacity of biofuels and electricity. National and/or provincial biofuel The energy transition in the power sector has been blending mandates have been introduced in Australia, progressing rapidly while end-use sectors, such as China, India, Indonesia, the Republic of Korea, Malaysia, heating, cooling and transport, have been lagging. At the Philippines, Thailand and Viet Nam. Several of these the global level, the share of renewables in the power countries have recently revised their targets to be more sector reached 20 per cent in 2014 compared to 12 stringent. Most of these targets are primarily based on per cent, 11.5 per cent, and 3 per cent, respectively in first-generation biofuels, but there is a trend to move the building, industry and transport sectors (IEA, 2016b). towards second-generation and advanced biofuels. India Most renewable energy policies in the Asia-Pacific region recently reduced the ethanol import tariff, removed the are focused on the power sector. Only a few countries central excise tax on ethanol blends and announced an have policies to increase the share of renewable energy investment programme to support palm oil production. in the end-use sectors. Electric vehicles One of the main uses of renewable energy in the industry sector is to provide process heat, such as biomass fuels A proposal in the thirteenth Five-Year Plan of China for combined heat and power boilers, solar thermal (APERC, 2016), issued on 3 November 2015, states that energy for low- and medium-temperature heat, biogas; the Government of China will implement a neighbourhood REGIONAL COOPERATION FOR SUSTAINABLE ENERGY IN ASIA AND THE PACIFIC 45 electric vehicle (NEV) popularization programme.8 It will distortions that encourage excessive consumption of fossil also upgrade the industrialization level for electric car fuels, and have significant environmental externalities, manufacturing to ensure the long-term development including greenhouse gas emissions. Cheap fossil fuels of the NEV industry in China. Under the proposal, a make low-carbon renewable energies less competitive. market-oriented NEV industrial system is expected to Subsidies erode the returns on investments on energy be developed by 2020. In addition, an independent, efficiency technologies, discouraging consumers and controllable and complete NEV industrial chain will be firms from investing in the most productive energy-saving built to produce three million NEV units annually. equipment and practices. Subsidies drain public finances and reduce public funds that could be spent on other The proposal has three objectives: (a) a greater than 80 pressing priorities. Subsidies are regressive, benefiting per cent share of the Chinese NEV market for domestically high-income households more than the poorer segments produced NEVs; (b) placing two Chinese companies of society. The International Monetary Fund (IMF) cites among the world’s top 10 for NEV sales with overseas data that the richest 20 per cent of households receive sales accounting for 10 per cent of the total sales; and six times more in energy subsidies than the poorest (c) automobile industry advances in NEV development 20 per cent (Coady, Sears, and Flamini, 2015). In terms while foreign automobile manufacturers remain inactive of public policy, fossil energy subsidies are in direct in promoting NEV. contradiction to national commitments to reduce carbon emissions. While NEVs are zero-emission vehicles, their net impact on fossil energy use and carbon emissions depends on Several approaches are available to tackle the unintended the energy resources used to generate the electricity environmental consequences of fossil fuel energy that recharges NEV batteries. Recharging with renewable subsidies. They can be repealed, or renewable energy electricity obviously gives NEV a much more sustainable subsidies can be raised to “level the playing field.” Levelling footprint. As the infrastructure is built for NEVs, recharging the playing field can be based on a current imbalance stations should be powered by photovoltaic panels and between fossil fuel and renewable energy subsidies and located at places where commuters are likely to remain historic imbalance over many years. long enough for recharging to be done (for example, work places and mid- to long-term parking lots).9 In some parts Another approach — assigning a price to carbon (World of the world, private entrepreneurs establish and service Bank, 2016) — engages markets and opens the door solar electric-powered grid-connected charging stations and to more realistic ways to evaluate energy choices. share revenues with the utilities providing back-up power. The World Bank reports that 40 countries and 20 subnational governments use carbon pricing, covering Policy frameworks for the transportation sector include: about 13 per cent of global greenhouse gas emissions. • Biofuel production subsidies; More progressive countries in the region have recently • Competitive tendering for biofuel production facilities; implemented or plan to introduce carbon pricing. • Biofuel blending mandates; • Tax incentives and exemptions; grants and subsidies Carbon pricing takes various forms. Cap-and-trade systems for advanced biofuels. set caps for carbon emissions and raise them each year. Permits to emit carbon within the cap are auctioned to polluters. Those who can keep their emissions under 6. PRICING ENERGY-BASED their allowances can sell what remains to polluters whose emissions exceed their allowances. The result is a monetary EMISSIONS incentive for emitters to reduce their pollution by becoming more energy efficient or switching to less polluting fuels. Fossil fuel prices in several Asia-Pacific countries are set Another result is a new revenue stream for governments. at artificially low levels. Some reason behind this are to protect the poor from fuel and commodity price An alternative is a carbon tax. A regulating agency volatilities, to facilitate access to affordable electricity, to sets a price per unit of carbon dioxide (a tax) and all boost the competitiveness of domestic industries and to emitters pay it. A common detail for debate is whether exploit natural resources for the benefit of the citizens the tax should be paid “downstream” by consumers or of energy-rich countries (UNEP, 2015). “upstream” by producers. Because downstream involves so many people and upstream does not, taxing fossil Fossil fuel subsidies have negative consequences (IEA, fuels at the point they enter the economy is thought 2011a, Beaton, and others 2013). They create market to be easier to administer. 46 REGIONAL COOPERATION FOR SUSTAINABLE ENERGY IN ASIA AND THE PACIFIC

Usually, the price of carbon reflected in the tax increases the price of fossil fuels, policymakers should encourage annually. In the most progressive policies, governments and help finance energy efficiency improvements from spend their carbon tax revenues to provide more effective which savings offset higher energy prices. Renewable solutions to energy poverty and to help vulnerable energy resources and technologies can be used to populations prepare for, avoid, adapt, or recover from replace functions previously performed by oil, gas or the impacts of climate change. Countries that have coal. These technologies can decouple quality of life implemented or announced plans to introduce cap-and from fossil fuels and carbon pollution, allowing people trade schemes include Australia (2010), China (2017), to sustain or acquire the comfort and convenience they Japan (2015), Kazakhstan (2013), New Zealand (2008) associated with carbon-based energy. and the Republic of Korea (2015). It is possible and sometimes advantageous for multiple jurisdictions to Status of energy subsidies in the Asia-Pacific region: create regional cap and trade programmes, as European Pricing reforms and subsidy removal has been an energy Union countries and two clusters of states in the United policy agenda item since the first oil shock in the 1970s; States of America have done. they remain an important agenda item. Countries are facing several challenges when they try to price carbon Defining subsidies: The extent of energy subsidy reform and discontinue fossil fuel subsidies (UNEP, 2015). depends, in part, on how subsidies are defined. Forgone Governments often find subsidies to be a convenient tax revenue is only one type. Government grants, loans, fiscal tool. Citizens have misconceptions that subsidies loan guarantees, research and development, technical are beneficial to all members of society, so governments assistance, energy procurement and even information are obligated to provide them. Special interests that have programmes are subsidies. Allowing producers to drill enjoyed subsidies for a long time tend to consider them or mine on public lands can be considered a subsidy. as entitlements. There are concerns that the removal The ideal reform would be to decarbonize government of a subsidy will have disruptive economic impacts, fiscal policies across the board as many of them were such as a rise in inflation and a decline in household designed for the carbon economies of the last century. purchasing power.

Redefining benefits and costs: The long-standing practice A review of energy price reforms in Asia-Pacific countries of externalizing many of the costs of fossil fuel extraction, shows mixed results. Ten of the top 25 nations in the refining, transportation, combustion and waste handling world that subsidized fossil fuel consumption in 2012 were has led to biases not only in energy markets but also in in Asia, according to ADB. Developing Asian countries consumer attitudes and behaviours. The public holds a reportedly were responsible for a third of the world’s perception that fossil fuels are much less expensive than fossil energy subsidies. Although the Group of Twenty they actually are. Consumers often do not connect their and Asia-Pacific Economic Cooperation (APEC) committed energy use with impacts, such as childhood asthma, early themselves, in 2009, to phase out inefficient fossil fuel deaths due to air pollution or the competition for water subsidies, there reportedly has been little progress in between farmers, cities and energy producers, including this regard. ADB has concluded that “energy subsidy thermoelectric power plants. reform has emerged as one of the most important policy challenges for developing Asian economies” (ADB, 2016). Subsidy management: Energy subsidies should be managed well. This means scrutinizing the likely social, Below are three brief examples of national efforts to reform environmental, and economic impacts of a subsidy energy prices and subsidies (ADB, 2016; IEA, 2015b): before it is approved. Impact analysis should be holistic, • India. The Government introduced full price deregulation considering all benefits and costs, direct or indirect, over in October 2014, allowing public-sector oil marketing the life of the policy or the activity it supports, including companies to price diesel on a cost-recovery basis. impacts that have been externalized and ignored in The price of natural gas was revised and the amended the past. Policymakers should periodically monitor each market linked pricing was adopted. Direct benefits subsidy’s performance to determine whether it is having transfer for LPG was introduced and the per-unit its intended effect, and establish end dates for subsidies subsidy for LPG was fixed. to evaluate whether new economic and environmental • Malaysia. Electricity tariffs were increased by 15 per conditions have made them obsolete. All should remain cent on average in January 2014. A fuel cost pass- publicly transparent. through was resumed to reflect international gas price movements. Natural gas prices were increased by up Value of efficiency and renewable energy for post- to 26 per cent for certain users. Gasoline and diesel subsidy adjustment: Insofar as subsidy reforms raise subsidies were abolished in December 2014. REGIONAL COOPERATION FOR SUSTAINABLE ENERGY IN ASIA AND THE PACIFIC 47

• Thailand. A modified cross-subsidy system was • Reforms are more likely to be successful with a introduced in August 2014. Gasoline and diesel popular government; prices were reduced in December 2014. The price • Reform initiatives are often triggered by adverse of natural gas for vehicles was increased in October economic events, but sustainable reform requires and December 2014. The subsidy scheme for LPG recognition of the long-term benefits of subsidy was also removed in December 2014. removal; • Ad hoc price adjustments, without a clear long- The key lessons learned from countries that have term goal, together with the inability to depoliticize successfully removed fossil energy subsidies are (IEA, pricing and subsidy policy, led to the re-emergence 2011a; Beaton and others, 2013; UNEP, 2015): of subsidies and the failure to implement sustainable • Fossil fuel subsidy reform is best undertaken as part reform; of broader energy sector reform; • Communicating the reform objectives and planned • Fuel prices could be indexed to international mitigating measures to the public can be effective benchmarks or an automatic price adjustment in promoting the acceptance of reforms. mechanism to depoliticize the price-setting process; • Public information campaigns are important to The Philippines experience with fuel pricing reforms.11 overcome barriers to subsidy reforms; The Philippines, a net oil importer, eliminated fuel • Real or perceived negative impacts of reform can be subsidies through the deregulation of the downstream mitigated if the reforms are implemented correctly; oil industry in the late 1990s. The oil deregulation law • Governments can introduce mechanisms to liberalized the industry and depoliticized the price-setting compensate vulnerable groups affected by price of fuel products. reforms by accurately analysing impacts and basing compensation on them The success of the reform can be attributed to good planning, a well-designed communication strategy, Case studies: fuel price reforms effective consensus building and strong political will. Authorities introduced appropriate indirect measures Indonesia:10 The Government cut energy subsidies in the to mitigate the effects of the reform. More recently, wake of the 1997 Asian financial crisis, which contributed the authorities announced several measures (pro-poor to political unrest. It then introduced rapid increases in spending programmes) to mitigate the impact of the fuel prices, resulting in consumer dissatisfaction and food and fuel crisis in mid-2008. protests. Price increases between 2000 and 2003 were implemented with mixed success because of poor The experience of the Philippines with regard to fuel communications, and then were rolled back. subsidy reform underscores the importance of planning, persistence and a good communication plan in achieving Indonesia became a net oil importer for the first time a successful outcome. The survival of the reform to date in 2004 and resumed fuel price increases. Petroleum can be attributed to its comprehensiveness. Mitigating subsidies were reduced in 2008 and the use of LPG measures for the poor during the 2008 fuel price hike was encouraged over kerosene in 2007. Furthermore, helped maintain support for the authorities’ approach subsidies on premium gasoline were removed and a to fuel pricing. fixed subsidy for diesel was introduced. Singapore: Singapore is the first country in the Asia-Pacific To mitigate the impacts of price reforms, the Government region to announce plans to introduce a carbon tax offered subsidies for rice; raised spending on health, scheme.12 The proposed tax, to take effect in 2019, will education and social welfare; and increased low-interest be imposed on power stations and large direct emitters. loans for small businesses. Unconditional cash transfers These entities have an option to either reduce emissions and other compensating measures were introduced or pay a carbon tax. The carbon tax will be between $10 during 2005. and 20 per ton of CO2. The revenue generated from the scheme will be used to fund measures by industries The key lessons from the country’s actions are: to reduce emissions. • Targeted cash transfers can reduce opposition to subsidy reform and assist the poor; The Kazakhstan Emissions Trading Scheme.13, 14 • Providing an affordable alternative energy source could Kazakhstan launched its emissions trading scheme in also help reduce subsidies and minimize opposition 2013. Qualifying businesses in energy, industry, and natural to reform; resource extraction with yearly emissions of more than 48 REGIONAL COOPERATION FOR SUSTAINABLE ENERGY IN ASIA AND THE PACIFIC

20,000 tons of CO2 are required to cap their emissions revenue. Several bankable projects in developing Asia- annually by increasing energy efficiency, domestic carbon Pacific countries are, however, not being implemented offset projects, and carbon trades. This is in line with because of a lack of financial resources to mobilize the country’s National Green Economy Programme, and secure financing at a reasonable cost. Financial which aims to reduce energy intensity from electricity policies are needed that improve the availability and production by 40 per cent and reduce overall emissions affordability of financial resources (Kimura and others, by 5 per cent relative to 1990 levels by 2050. The total 2016). cap in 2014 was 155.4 million tons of CO2, with caps distributed freely to individual companies. The cap for The scope of financial policies is broad, ranging from

2015 was 153 million tons of CO2, which is 1.5 per cent providing public finance to incentivizing private-sector lower than the cap in 2014. Emission data reporting financing. It includes banking regulations, public financing requires verification from accredited third-party entities. schemes, carbon financing, technical assistance, capacity- The current penalty for non-compliance amounts to 30 building in the financial sector, competitive and transparent euros (€) ($32.69) per ton CO2. financial markets, especially bond markets and stock markets and innovative financial instruments (Kimura and others, 2016). 7. MOBILIZING ENERGY Financial tools used by the private sector in clean energy FINANCE investments include equity, debt, corporate financing, bonds, credit facilities, insurance, project finance, lease At the global level, it is estimated that, in order to reach finance, refinancing, venture capital, mezzanine finance global commitments and thus reap the benefits associated and bridge financing. Public financing tools, on the other with them, investment requirements for renewable energy hand, include research and development support, grants, projects alone amount to $500 billion per year to 2020. soft loans, loan facilities, credit enhancement, credit lines, Global investment must then reach $900 billion each year guarantees, incubators, public venture capital funds and up to 2030 (IRENA, 2016b). These investment numbers public equity funds. are only possible with concurrent energy efficiency measures. While universal access to electricity requires The availability of financial resources and a dedicated from $1 billion to 52 billion per year and universal access financial market for clean energy are important for to clean fuels and technology may require investments developing the Asia-Pacific region as it lacks deep capital of $14 billion to 41 billion per year.15 The potential of markets. There is, however, a large pool of investable private investment in promoting energy access should funds in Asia that could be tapped for clean energy not be underestimated. Currently, the so-called “bottom projects. To attract these large investors, proposals need of the pyramid” energy users spend $37 billion on to be packaged in a form familiar to them, such as those energy services, such as kerosene, batteries or candles, used with bonds (Kimura and others, 2015). which are often inefficient and more costly than clean alternatives (IFC, 2012). Public policy also is needed to accelerate the development of a green bond market in the region. Government Opportunities to raise capital from the public sector interventions could include the development of a pool are limited, meaning that project sponsors must rely on of long-term investors that can invest in long-term bonds; private and commercially sourced financing (Schwabe and encouragement and facilitation for the issuance of retail others, 2012). The public sector is not able to increase bonds to attract small investors and enable small to its level of funding from the current share of 15 per medium-sized renewable energy companies to tap the cent, so private sector funding, including institutional bond market for financing; the provision of historical data investors, can play a crucial role in scaling up renewable about the performance of renewable energy projects energy investments (IRENA, 2016b). About $2.8 trillion per to reduce investors’ perceived risks; national regulation year could be potentially sourced from pension funds rules, standards, and classification systems for green and insurance companies for clean energy investments bonds; incentives for the issuance of green bonds; and (Kaminker and Stewart, 2012). a regional financial market for fixed-income instruments to help boost the liquidity of green bonds (Kimura, and Private investors make investment decisions based on the others, 2016). risk-return prospects of a project (Sonntag-O’Brien and Usher, 2004). The energy policies described in previous Options available to policymakers in the Asia-Pacific sections reduce risks and improve expected project region are wide ranging. Each country could develop REGIONAL COOPERATION FOR SUSTAINABLE ENERGY IN ASIA AND THE PACIFIC 49 its own specific framework and mechanisms based on programmes include renewable and alternative energy, the domestic renewable energy resources, technological research and development projects, human resource capacities, levels of maturity in the domestic electricity development, public awareness, and education. The fund markets and financial market readiness and the availability collects revenue from a levy of 0.07 Thai baht (B) ($.002) of public financing. per liter on all petroleum products.

In summary, to scale up renewable energy investments, In addition, an energy savings company fund was the public sector can focus on the following key action established by the Department of Alternative Energy areas, which cover traditional and emerging financial Development and Efficiency under the Ministry of tools (IRENA, 2016b): Energy. The fund receives grant support from the energy 1. Advance renewable energy projects from initiation conservation fund to encourage energy efficiency and to full investment maturity. This involves support renewable energy project investments. The energy in project preparation through capacity-building, savings company fund investment channels include dedicated grants and interaction between project equity investments, venture capital, equipment leasing, developers. a carbon credit facility, credit guarantee facility and 2. Engage with and build confidence in local financial technical assistance. institutions in renewable energy finance. This entails development of dedicated resources to build capacity The Energy Efficiency Revolving Fund of Thailand at local financial institutions to develop and implement stimulates energy efficiency investments in large-scale lending facilities specifically for clean energy projects. energy-consuming industrial sectors. The fund was 3. Manage risks to attract private investors. Risks can launched with B 2 billion from the energy conservation be managed by streamlining the procedures and fund. It has engaged commercial banks to develop and redirecting institutional incentives to enable greater streamline procedures for appraising and financing energy provisions of risk mitigation instruments. In addition, efficiency projects and provides loans with zero per cent new risk mitigation instruments, structures, funds or interest and seven-year final maturity to local commercial facilities for power off-taker risk and currency risk in banks as an incentive to lend to energy efficiency project emerging markets could be developed. owners, developers, and energy savings companies at a 4. Mobilize more capital market investment. The maximum interest rate of 4 per cent. The Government’s public sector could establish standardized project dedicated credit line lowers the banks’ risks, which makes documentation, tendering, contracting and due the energy savings and financial paybacks “tangible” to diligence processes. The project pipeline and commercial banks. This partnership has helped unlock a aggregated projects could be expanded, and the bottleneck in energy efficiency financing. public sector could develop policy and guidelines for green bond issuance. India: India established the Indian Renewable Energy 5. Create facilities dedicated to scaling up renewable Development Agency (IREDA) as a public limited government energy investment. This involves establishing financing company. The agency, which is partly funded by the facilities to issue risk mitigation instruments, cover Government and is administered by the Ministry of New and transaction fees or support the design of structure Renewable Energy, provides financing to project developers. finance mechanisms. Various sources of funding, IREDA also receives financial and technical support from the including climate finance, could be used to provide German development bank, the French development bank, resources for dedicated financing utilities for renewable the Nordic Investment Bank, the European Investment Bank, at national, global or regional levels. the Japan International Cooperation Agency, the World Bank, ADB and other international financial institutions, agencies, Several Asia-Pacific countries have introduced at least and investors. Eligible renewable energy and energy one of these actions independently or as integral parts efficiency project developers have access to the following of various energy efficiency and renewable energy financial programmes: programmes. • Concessional loans: Project developers are eligible for loans of up to 70 per cent of the project costs Case studies: public financial tools or energy efficient equipment. • Interest rate rebates: Renewable energy project Thailand: Thailand established an energy conservation developers are eligible for up to a 0.5 to 1 per cent fund to serve as a source of working capital, grants, reduction in the set interest rate. and subsidies for implementing energy conservation • Financial assistance: Renewable energy project programmes in the public and private sectors. Eligible developers are eligible for a 50 per cent discount on 50 REGIONAL COOPERATION FOR SUSTAINABLE ENERGY IN ASIA AND THE PACIFIC

the initial costs of project implementation, including The main challenge that countries in the region must processing, inspection, legal, and front-end fees related overcome is the relatively weak and fragmented to renewable energy installations. institutional arrangements on energy system transition. • Credit lines for commercial banks: IREDA extends a More partners and a multidisciplinary approach, are line of credit to eligible financial intermediaries to needed to plan and implement the transition. Among lend and/or lease energy-saving equipment. the government agencies, stronger coordination and • Tax benefits: Developers are eligible for up to 100 information exchange would strengthen measures for per cent tax deduction for the recovery of depreciated addressing access, energy efficiency and renewable property in the first year of the project on specified energy. equipment. They are also exempt from import and excise taxes on energy efficiency and renewable Addressing the energy transition challenge requires a mix energy technology. of incentives for clean energy: reforms of energy markets, carbon emissions pricing, fossil fuel subsidy reform and In addition, the National Mission on Enhanced Energy cost reflective tariffs relating to differences between urban Efficiency (NMEEE) initiative of India is one of the missions and rural pricing. Phasing out fossil fuel subsidies should under the country’s National Action Plan on Climate be at the top of the region’s policy reform agenda. Change. Under NMEEE, the Framework for Energy Efficient Subsidies on fossil fuels distort incentives in favour of Economic Development was established. This framework fossil fuels at the expense of cleaner energy. This is is comprised of the following components: particularly important to decentralized systems aimed at • Partial Risk Guarantee Fund. This fund is a risk-sharing providing access to rural households. However, attracting mechanism that provides commercial banks with partial private capital to such investments is a challenge because coverage of risk exposure against loans issued for sustainable energy projects tend to have high upfront energy efficiency projects. capital costs and perceived regulatory and political risks. • Venture Capital Fund for Energy Efficiency. This fund Therefore, stakeholders need to understand the distinctive increased the availability of risk capital to the energy nature of such investments and develop suitable vehicles savings company and other companies that invest in to finance projects in a way that aligns with their varying the supply of energy efficient goods and services. sizes, operational models and investment objectives.

With an energy technology renaissance already under way, new technologies are reducing the cost of clean energy 8. CONCLUSION and renewable power. Smart grids and electric vehicles are rapidly gaining market share. Advances in long- The Asia-Pacific region’s energy transition is gaining distance power transmission technologies link renewable momentum, but it needs radical changes in governance energy resource-rich areas with distant population centres. to achieve a higher and more rapid trajectory towards On the demand side, energy efficiency technologies meeting SDG 7. Countries need to broaden and have an important role to play in the energy transition. strengthen interventions to unlock more energy savings Improved energy efficiency is a key driver in decoupling and deploy renewable energy to strengthen poverty energy use and GDP growth in many economies along reduction efforts, meet rising energy demand and with meeting broader social development objectives. decouple rising economic activity from energy demand However, to implement the 2030 Agenda, it is critical and greenhouse gas emissions. that science, technology, and innovation also focus on social and environmental concerns. Technological change Governments have to play a key role in the transition, for sustainable energy, particularly in developing countries, primarily because markets and private firms, by is not only about innovating at the frontier, but more themselves, cannot address the technological, financing, importantly, about adapting existing energy resources to social, and environmental challenges that impede the achieve higher levels of productivity as applicable to their acceleration of energy transition. Policies and strategies local contexts. The ability of local firms and enterprises to need to be developed through more evidence-based access technological know-how is fundamental to shape research — working with research institutions and other their ability to provide sustainable energy products and national and international organizations with innovative services. Both are essential to improve living standards approaches and solutions to policies and strategies. and promote growth and competitiveness. REGIONAL COOPERATION FOR SUSTAINABLE ENERGY IN ASIA AND THE PACIFIC 51

ENDNOTES 1 See http://pubdocs.worldbank.org/en/255181481727526594/ Global-Economic-Prospects-January-2017-Highlights-Chapter-1. pdf. 2 An example of a split incentive is an apartment building in which the tenant, rather than the owner, pays the energy bills. The owner sees no profit in upgrading the apartment’s efficiency and the renter sees no equity in paying to retrofit his apartment with structural efficiency improvements. As a result, energy efficiency improvements are not done. 3 See http://www.prayaspune.org/peg/initiatives/electricity- governance-initiative-egi.html. 4 FiTs are payments to ordinary energy users for the renewable energy they generate, whether they consume it themselves or put it into the power grid. Source: goo.gl/fGwsU4 (example of Japan’s FiT). 5 See http://www.economist.com/news/leaders/21714350-case- high-voltage-direct-current-connectors-chinas-embrace-new. 6 Wp stands for Watt-peak and kWp stands for kilowatt peak. 7 Barefoot College, “Women Barefoot solar engineers a community solution”, November 4, 2012. Available from: https:// www.barefootcollege.org/women-barefoot-solar-engineers-a- community-solution/. 8 NEVs are smaller electric vehicles that typically have a top speed of 40 km/h (25 miles per hour). They are designed for low-speed limits on neighbourhood streets rather than on highways. 9 Some recharging equipment is advertised as able to charge an electric vehicle in 30 minutes or less. 10 See http://www.imf.org/external/np/pp/eng/2013/012813a.pdf 11 See http://www.imf.org/external/pubs/cat/longres.aspx?sk= 43422. 12 See https://www.nccs.gov.sg/climate-change-and-singapore/ domestic-actions/reducing-emissions/carbon-pricing. 13 See Enhancing Capacity for Low Emission Development Strategies. Available from https://www.ec-leds.org/success/ kazakhstan-launches-asias-first-economy-wide-emission-trading- system. 14 See International Carbon Action Partnership. Available from https://icapcarbonaction.com/en/?option=com_etsmap&task= export&format=pdf&layout=list&systems%5B%5D=46. 15 ESCAP. “Draft outcome document, seminar on supporting Sustainable Development Goal 7, target 7.1.” Bangkok, 21-23 June 2016. Available from https://sustainabledevelopment. un.org/content/documents/11336Seminar%20on%20SDG7_ Outcome%20Document_FINALv3%20CLEAN.pdf. 52 REGIONAL COOPERATION FOR SUSTAINABLE ENERGY IN ASIA AND THE PACIFIC REGIONAL COOPERATION FOR SUSTAINABLE ENERGY IN ASIA AND THE PACIFIC 53

CHAPTER 4 REGIONAL COOPERATION FOR SUSTAINABLE ENERGY 54 REGIONAL COOPERATION FOR SUSTAINABLE ENERGY IN ASIA AND THE PACIFIC

tronger and deeper regional energy cooperation can enhance their capacity to meet emerging challenges, can greatly contribute to the implementation of the including accessing policy best practices, enhancing S2030 Agenda. Despite the enormous potential benefits, skills and capacities and the application and transfer of regional cooperation is proceeding at a relatively slow technologies. pace because of the need for stronger political will and greater mutual trust among countries, and, often, Many cooperative efforts are being undertaken for lack of capital investment (Lee, 2003). Currently, regional sustainable energy, and some discussions are under way cooperation in Asia and the Pacific has come mainly from for deeper cooperation in the Asia-Pacific region. Regional subregional groups dealing with trade, transport, ICT and energy cooperation has been evolving in the region, mainly socioeconomic cooperation. Regional cooperation on driven by regional and subregional organizations that energy is a relatively new area, which is gaining more recognize the importance of the economic, environmental, and more attention from different subregions. and social dimensions of the energy sector. Bilateral donors and international financial institutions also contribute by This chapter discusses some of the ongoing efforts at the supporting specific energy-related studies and projects in subregional level to promote cooperation and analyses the region. Financing large-scale transmission infrastructure opportunities for further cooperation, especially at the in the Asia-Pacific region is largely handled by the regional level, which holds the potential to accelerate public sector and international development banks energy transition while also making it more cost effective. rather than by the private sector. The World Bank, the European Bank of Reconstruction and Development, the European Investment Bank, and the Eurasian 1. REVIEW OF REGIONAL Development Bank are multilateral financial institutions that strongly support regional cooperation, including energy COOPERATION INITIATIVES connectivity. Asian Development Bank, the Asian Infra- structure Investment Bank, the New Development Bank Regional cooperation on sustainable energy can and the Islamic Development Bank also have specific bring benefits to all participating countries through provisions for providing technical assistance to entities using multilateral approaches. Regional cooperation in the region for developing infrastructure. enables countries to participate through several areas of collaboration. Multilateral cooperation on energy Experiences and lessons can be learned from the connectivity facilitate access to more energy resources following examples of regional energy cooperation in to diversify energy supply. For developing countries, it the Asia-Pacific region. Figure 4.1. Regional cooperation initiatives

Source: ESCAP, 2017 Note: ASEAN, Association of Southeast Asian Nations; BCIM, Bangladesh, China, India and Myanmar; BIMP-EAGA, Brunei Darussalam-Indonesia-Malaysia- Philippines East ASEAN Growth Area; BIMSTEC, Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation; CAREC, Central Asia Regional Economic Cooperation; ECO, Economic Cooperation Organization; GMS, Greater Mekong Subregion; GTI, Greater Tumen Initiative; IGC-TRACECA, Intergovernmental Commission-Transport Corridor Europe Caucus Asia; IMT-GT, Indonesia-Malaysia-Thailand Growth Triangle; SAARC, South Asia Association for Regional Cooperation; SASEC, South Asia Subregional Economic Cooperation; SCO, Shanghai Cooperation Organisation. REGIONAL COOPERATION FOR SUSTAINABLE ENERGY IN ASIA AND THE PACIFIC 55

Asia-Pacific Economic Cooperation cultural, technical, scientific and administrative fields, • Provide assistance to each other in the form of training The Asia-Pacific Economic Cooperation (APEC)1 is a and research facilities in the educational, professional, regional economic forum established in 1989 to leverage technical, and administrative spheres. the growing interdependence of the Asia-Pacific region. • Collaborate more effectively for the greater utilization It aims to create greater prosperity for the people of of agriculture and industries, the expansion of trade, the region by promoting balanced, inclusive, sustainable, including the study of the problems of international innovative and secure growth, and by accelerating regional commodity trade, the improvement of transportation economic integration. and communications facilities and the raising of living standards. Relevant aspects covering energy cooperation include • Promote Southeast Asian studies. achieving a “sustainable and inclusive Asia-Pacific” mainly • Maintain close and beneficial cooperation with existing through capacity-building and knowledge sharing, guided international and regional organizations with similar by the Energy Working Group Strategic Plan for 2014-2018 aims and purposes, and explore all avenues for even (APEC, 2015). Pillars of the Energy Working Group are: closer cooperation. (a) strengthening energy security; (b) promoting energy efficiency and sustainable communities; (c) developing The ASEAN Centre for Energy (ACE) was established in cleaner energy sources; and (c) enhancing trade and 1999. It is an independent intergovernmental organization investment in all energy sources to promote economic within the ASEAN structure that represents the ASEAN prosperity. APEC energy goals include: (a) double the member States’ interests in the energy sector. ACE share of renewables in the APEC energy mix, including in accelerates the integration of energy strategies within power generation by 2030; and (b) reduce its aggregate ASEAN by providing relevant information and expertise energy intensity by 45 per cent from 2005 levels by to ensure the necessary energy policies and programmes 2035. are in harmony with the economic growth and the environmental sustainability of the region. In particular, recognizing the impacts of climate change, APEC members are collaborating on developing energy The key energy initiative is the ASEAN Plan of Action for efficient technologies, cleaner fossil fuel technologies and Energy Cooperation (APAEC) 2016-2025, with the theme renewable energy technologies, and also in efforts to of “Enhancing energy connectivity and market integration promote of sustainable management of forest and marine in ASEAN to achieve energy security, accessibility, resources. Capacity-building projects target specific policy affordability and sustainability for all.”3 APAEC has identified areas, from enhancing small and medium enterprise seven programme areas for cooperation: (1) ASEAN Power competitiveness to facilitating the adoption of renewable Grid; (2) Trans ASEAN Gas Pipeline; (3) coal and clean energy technologies in the region. Knowledge-sharing coal technology; (4) energy efficiency and conservation; practices include information and data exchanges, joint (5) renewable energy; (6) regional energy policy and research and development. planning; and (7) civilian nuclear energy.

Association of Southeast Asian Nations The ASEAN Power Grid is one of the energy cooperation tracks of APAEC. It aims to ensure mutually beneficial The Association of Southeast Asian Nations2 was regional electricity security and sustainability by connecting established on 8 August 1967. The 1967 ASEAN countries with surplus power generation capacity to those Declaration outlines the purpose of the association, that face a deficit. Within this initiative, the primary scope which is to: for cooperation is infrastructure (physical connectivity • Accelerate the economic growth, social progress, across borders, integrated energy market) and technical and cultural development in the region through joint (public-private partnerships for financing and technology endeavours in the spirit of equality and partnership in transfer). In this regard, the priority project of ASEAN is order to strengthen the foundation for a prosperous the LTMS4-Power Integration Project. Led by the Heads of and peaceful community of Southeast Asian nations. ASEAN Power Utilities/Authorities (HAPUA). It is recognized • Promote regional peace and stability through abiding as the authoritative electricity organization in South-East respect for justice and the rule of law in the relationship Asia, with the mandate to coordinate multilateral electricity among countries of the region and adherence to the trading by 2018. However, bilateral agreements have principles of the United Nations Charter. no yet been integrated into the regional power grid, • Promote active collaboration and mutual assistance on which will require further efforts to harmonize policies matters of common interest in the economic, social, and regulation. 56 REGIONAL COOPERATION FOR SUSTAINABLE ENERGY IN ASIA AND THE PACIFIC

Another energy initiative within the ASEAN cooperation The SAARC Energy Center, which functions within the framework is the Trans-ASEAN Gas Pipeline, which SAARC structure, is working on the SAARC Energy focuses on liquefied natural gas. The pipeline project is Ring in South Asia. This work is coordinated by expert intended to establish interconnecting arrangements of groups on oil and gas; electricity; renewable energy; electricity and natural gas in ASEAN to ensure greater and technology transfer. security and sustainability of energy supply in the region, while connecting existing and planned pipelines and However, only a limited power transmission infrastructure regasification terminals, minimizing the environmental currently exists: India is the only country that has cross- impact. This work is led by the ASEAN Council on country interconnections with Bangladesh, Bhutan and Petroleum, which is comprised of the head of the Nepal national oil company in each member country. The project entails developing a regulatory framework, such as Central Asia Regional Economic Cooperation open access, gas transit principles, and gas specification harmonization, aimed at facilitating the implementation The Central Asia Regional Economic Cooperation 5 of the TAGP Project. (CAREC)7 is a partnership of 11 countries, supported by six multilateral institutions, working together to promote The South Asian Association for Regional development through cooperation. The goal is accelerated Cooperation growth and poverty reduction, achieved by addressing infrastructure and policy, politics (lack of willingness The South Asian Association for Regional Cooperation and commitment, complex internal politics and security 6 (SAARC) was founded in Dhaka in 1985. The partnership issues), technical issues (limited regional interconnections), focuses on regional economic cooperation and institutional commercial issues (deficient market mechanisms and capacity-building, with the aim to promote development legal framework), and funding (shortage and (or) lack of energy resources (including hydropower), facilitate of timely availability) issues. energy trade in the region, develop renewable and alternative energy resources and promote energy The Strategy and Work Plan (2016-2020) for Regional efficiency and conservation. The objectives of SAARC Cooperation in the Energy Sector of CAREC Countries, include: (a) to promote the welfare of the peoples of which is an update to the 2008 Energy Strategy8 was South Asia and to improve their quality of life; (b) to endorsed at the fifth Ministerial Conference on Central accelerate inclusive economic growth, social progress and Asia Regional Economic Cooperation. The strategy cultural development in the region; (c) to promote and requires reporting on advances made by CAREC since strengthen collective self-reliance among the countries 2008, changes in the energy sectors of the CAREC of South Asia; (d) to contribute to mutual trust; (e) to member countries, and current trends in the regional and promote active collaboration and mutual assistance in the global energy sector. The strategy aims to enable the economic, social, cultural, technical and scientific fields; (f) development of solutions to meet future energy demand to strengthen cooperation with other developing countries; and to promote the development of sustainable energy (g) to strengthen cooperation among themselves in resources for the region, and for export by cultivating the international forums on matters of common interests; potential for mutually beneficial gains among participating and (h) to cooperate with international and regional countries. The topics addressed are: (a) a long-term organizations with similar aims and purposes. vision for the sector; (b) a strategic approach to regional cooperation, including principles for regional cooperation, The SAARC Framework Agreement for Energy benefits from regional cooperation, technology and Cooperation was issued in 2014. The document provides sustainable energy; (c) strategic components and priorities, details on the agreement to cooperate as SAARC member including investment measures for regional cooperation, States. In particular, it recognizes the importance of capacity-building and knowledge sharing and policy electricity in promoting economic growth and improving support; and (d) strategy implementation and monitoring the quality of life. It also recognizes common benefits of the Energy Sector Coordinating Committee Work Plan of cross-border electricity exchanges and trade among 2016-2020 and the Strategy and Work Plan (2016-2020). the SAARC member States, which would lead to optimal Energy corridors outlined in the energy strategy include utilization of regional electricity generating resources, those within Central Asia, Central Asia-China, Central Asia- enhanced grid security, and electricity trade arising from South Asia, Central Asia-Russian Federation, and Central diversity in peak demand and seasonal variations. Asia–European Union. REGIONAL COOPERATION FOR SUSTAINABLE ENERGY IN ASIA AND THE PACIFIC 57

The Shanghai Cooperation Organization “Enhancing sustainable transport and energy security”. (c) Helping Pacific people reach their potential and live The Shanghai Cooperation Organization (SCO)9 is an long and healthy lives. intergovernmental international organization, which was established in 2001 in Shanghai, China. The Secretariat of the Pacific Regional Environment Programme The main goals of SCO are to strengthen mutual trust and good neighbourliness among the member The Secretariat of the Pacific Regional Environment States; promote their effective cooperation in different Programme (SPREP)13 has been entrusted by Governments areas, including in research, technology, energy and and administrations in the Pacific region with the protection environmental protection; make joint efforts to maintain and sustainable development of the region's environment. and ensure peace, security and stability in the region; and move towards the establishment of a democratic, fair and The Secretariat’s activities are guided by its Strategic rational new international political and economic order. Action Plan 2011-2015.14 The plan addresses four priority areas, namely climate change; biodiversity and ecosystem The Development Strategy of the Shanghai Cooperation management; waste management and pollution control; Organization until 202510 is the outcome of the Ufa Summit and environmental monitoring and governance. It also of leaders of the SCO member States, which was held promotes low-carbon development by supporting in Ufa, Russian Federation, on the 9th and 10th July, 2015. members in implementing cost-effective renewable energy Focusing on governance factors that shape the economic and energy efficiency measures, low-carbon technologies environment and mechanisms that deepen regional and greenhouse gas emissions monitoring. integration, the strategy is aimed at providing responses to existing regional energy and environmental concerns. Greater Mekong Subregion Economic In particular, it promotes cooperation for the introduction Cooperation Programme of renewable and alternative sources of energy, energy efficient technologies, and energy infrastructure In 1992, the countries of the Greater Mekong Subregion security. (GMS),15 with assistance from ADB and building on their shared histories and cultures, launched the The Pacific Community GMS Economic Cooperation Programme to enhance their economic relations. The strategy of the GMS 11 The Pacific Community (SPC) is the principal scientific Programme focuses on increasing connectivity through and technical organization in the Pacific region, which the sustainable development of physical infrastructure and through its work, has been supporting development since the transformation of transport corridors into transnational 1947. Governed by 26 country and territory members, economic corridors; improving competitiveness through SPC strives for a region of peace, harmony, security, efficient facilitation of the cross-border movement of social inclusion, and prosperity, so that all Pacific people people and goods and the integration of markets, can lead free, healthy and productive lives. This is a production processes and value chains; and building shared vision for the Pacific under the Framework for a greater sense of community through projects and Pacific Regionalism. programmes that address shared social and environmental concerns. GMS cooperation in the energy sector is 12 Under the Pacific Community Strategic Plan 2016-2020, working towards a competitive and integrated regional three development goals are addressed: market that will develop, in a sustainable manner, the rich (a) Helping Pacific citizens benefit from sustainable energy resources of the GMS, improving the subregion’s economic development. This goal includes one energy security and the people’s access to modern and energy-related provision: “Strengthen sustainable affordable energy supplies. Strategies include building transport and energy security”. The objective is to national and regional institutional capacity; cost sharing strengthen sustainable transport and energy security across borders; governance and regulations; enhancing by providing technical, legal, and policy advice and access to modern energy; developing low-carbon and services to promote reliable, affordable, safe, and clean renewable domestic resources; improving regional transport and energy services. The goal also aims to energy cooperation and energy security; and promoting “strengthen access to and use of development statistics private sector participation in energy development. in policy development and monitoring progress”. One key focus area is the development of hydropower (b) Empowering Pacific communities for resiliency. potential, especially in the Lao People’s Democratic This goal includes one energy-related provision: Republic. 58 REGIONAL COOPERATION FOR SUSTAINABLE ENERGY IN ASIA AND THE PACIFIC

Bay of Bengal Initiative for Multi-Sectoral the CASA 1000 high-voltage grid connection, which Technical and Economic Cooperation will bring electricity from Kyrgyzstan and Tajikistan to Afghanistan and Pakistan; and the TAPI18 gas pipeline, The Bay of Bengal Initiative for Multi-Sectoral Technical which will transport natural gas from Turkmenistan to and Economic Cooperation (BIMSTEC)16 was established in energy consumers in Afghanistan, Pakistan, and India. 1997 with objectives ranging from creating economic and The Belt and Road Initiative proposes the development social prosperity based on equality to enhancing mutual of economic corridors connecting China, with the rest benefits in economic, social, and technological aspects of Asia and beyond, and has inherent potential to through the involvement of intraregional assistance in the bolster regional energy cooperation. The initiative is form of training, research and development. intended to foster transboundary power connectivity and helps reduce the energy deficits currently affecting The energy agenda, led by Myanmar within the regional productivity and development. However, it will BIMSTEC Energy Centre, primarily focuses on developing require a high-level political commitment, investment regional hydrocarbon and hydropower potential, energy in infrastructure, removal of institutional barriers, and infrastructure improvement including pipelines and the normalization and harmonization of standards and transmission lines, knowledge sharing and energy trading regulations. Developing clean energy corridors along the between member countries. Other activities pertaining to Belt and Road requires an assessment of the availability the energy sector include issues related to development and potential for renewable energy power generation of new and renewable sources (including small hydro), and transmission. addressing the food-energy nexus, standardization and testing. These are captured in the BIMSTEC Memorandum Although progress is being made, challenges remain. In of Understanding on Grid Interconnection. particular, lack of political commitment, weak institutions in managing transboundary transactions as well as managing In 2016, Sri Lanka agreed to set up the BIMSTEC Center for stakeholders, and mobilizing private sector for investment Technology Transfer Facility to contribute to the collective are some of the major challenges. drive for economic advancement. Operationalization of the facility is proceeding at a relatively slow pace. Northeast Asian Super Grid/Gobitec 2. A PATHWAY TOWARD A COMMON ENERGY AGENDA Northeast Asian Super Grid/Gobitec17 aims to use super grids to align supply and demand centres within the Successful energy connectivity initiatives are encouraging, North-East Asia subregion, tapping abundant potential but they need to be replicated more widely, and renewable energy supplies in the Gobi Desert. their speed of implementation must be increased. To expedite project implementation, project lead-time must To execute this multilateral project, strong political and be shortened by putting into place a well-functioning institutional frameworks must be built. However, no intergovernmental mechanism. Over the next few regional institutional bodies, such as ASEAN or SAARC, decades, actions will be needed to build physical energy exist in the subregion. Even though the subregion might networks, institutional connectivity and, most importantly, be characterized as being economically integrated to a trust between nations. relatively high degree, institutional integration in North- East Asia remains low. In order to achieve increased sustainability of the power generation sector, near-term benefits, including; economic As can be seen from some of the examples above, gains, more adequate electricity, and increased power energy cooperation activities within the existing economic reliability, should be seen as priorities to convince cooperation initiatives focus on efforts to establish common policymakers to pursue transboundary connectivity energy markets or on specific areas for cooperation based initiatives. These operational steps are an essential aspect on mandates, along with the political and institutional of a long-term vision for energy connectivity within the complexities involved. Asia-Pacific region, as power trade evolves from bilateral to multilateral to integrated regional markets. Subregional energy connectivity has fostered energy security through a number of initiatives, including The established framework for planning, building two landmark projects that involve energy trade from regulating, and operating electric power systems is North and Central Asia to South and South-West Asia: evolving. Demand, cost, and fuel are no longer the REGIONAL COOPERATION FOR SUSTAINABLE ENERGY IN ASIA AND THE PACIFIC 59 only inputs on which power system regulators can base regional integration, particularly in the energy sector, their decisions. Focus has begun to shift to a complex which requires more comprehensive engagement in terms dynamic of outputs, including affordability, reliability, of technical and regulatory harmony and establishing sustainability, resilience, environmental and sociopolitical mutual dependencies in energy markets. However, there goals. The integration of variable renewable energy are currently significant movements happening in the sources continues to increase, making the supply of region’s energy sector and a more collective approach energy more volatile. The fundamental transformation to development is likely to ultimately deliver the most currently taking place requires a rethinking of policies, sustainable end result (Atkinson, 2016). business models, and operations with respect to power systems. Also required is an ongoing vibrant global and As energy demand rises, energy connectivity plays an regional dialogue about policy design and governance increasingly important role as a key dimension of regional mechanisms and deep engagement with the finance and economic cooperation and integration — and the ability investment communities. Sharing critical knowledge and for countries to meet their energy demand, enhance adapting best practices would help to make the transition energy access and improve the sustainability of their more viable and successful (Brazilian and others, 2013). energy sector. There is great potential for energy security improvement and for overcoming many energy sector challenges with enhanced energy cooperation. Energy 3. THE BENEFITS OF ENERGY connectivity is usually binding together indigenous sources and effectively using supply-demand complementarities CONNECTIVITY THROUGH through trade, cross-border investments and technical ENHANCED REGIONAL cooperation. This is particularly the case with regard to regional cooperation in the electricity subsector, wherein COOPERATION interconnected power systems promote more economic and environmental outcomes. Interconnected systems A review of existing initiatives in the Asia-Pacific region also benefit all linked subregions by way of enhanced indicates that the benefits of energy connectivity have reliability and stability of the shared power generation been acknowledged to varying degrees in the region. installations for equitable distribution.19 At a broader Important physical and institutional linkages are either in level, the best energy mix in a country is fulfilled when place or in developing phases. There are also prominent regional energy flows are optimized based on cooperation axes around which connectivity is developing: the ASEAN between net consumers and net suppliers. Therefore, Economic Community is an emerging and integrating regional cooperation is critical for creating cross-border energy demand block; gradual progress is being made resiliency in energy infrastructure, going from “energy in the SAARC and developed around the CASA 1000 self-sufficiency” to “high interconnectedness”. initiative, with particularly large demand growth projected for India; and East and North-East Asia is a highly Regional interconnectivity can accelerate energy transition. import-dependent subregion, with China a dominant Table 4.1 presents an example, from transboundary growing subregional and regional demand hub, while power trade, of typical integration levels by key targets energy cooperation within the subregion is limited at for energy cooperation. this stage. Linkages are also already developing and further opportunities are being identified between these interconnecting hubs. ASEAN, through the GMS electricity market programme, is developing infrastructure ties with 4. A COMMON VISION Southern China and, conversely, China is developing gas and oil trading links in ASEAN through Myanmar, which Transboundary power trade at regional, subregional and has also been considered by Bangladesh and India for bilateral levels still faces many barriers. These common trading gas. challenges present in the majority of member States include political, technical, regulatory and financial Most importantly, while there is general recognition of the barriers. No single barrier is insurmountable; however, the benefits of regional energy connectivity at the subregional combination of barriers often proves difficult to overcome, level in Asia and the Pacific, many of these initiatives are as evidenced by the global lack of regionally integrated very much in their early development stages, with the power markets. While technical, regulatory, and financial vast majority of energy trading existing at a bilateral level. barriers can be overcome through effective policy, this In this regard, some patience is required, as institutional requires political will, which is often lacking because of capacity development is critical in terms of progress for a number of factors. Other identified challenges include: 60 REGIONAL COOPERATION FOR SUSTAINABLE ENERGY IN ASIA AND THE PACIFIC

Table 4.1. Typical integration levels by key targets for energy cooperation

Interconnection Shallow integration Deep integration Regional connectivity Typically starts with two Interconnected grid involving Operation of a fully architecture countries, later a wider a number of neighbouring synchronous, multicountry, interconnected grid countries interconnected power system Cross-border trading Long-term bilateral power Long-term power purchase Electricity pricing competition arrangements purchase agreements agreements supplemented with achieved through a range of short-term markets market mechanisms, such as spot, day-ahead, transmission and capacity auctions Technical and/or regulatory Simple rules agreed upon Harmonization of rules, grid Harmonization of rules, grid harmonization for the operation of the codes, and transmission tariffs codes, and transmission tariffs interconnected system Planning and investment National planning and Some coordination of national Regional integration body coordination investment investments with optimized empowered to require regional investment plan investments in agreed upon regional plan to be implemented

Source: Adapted from World Bank (2010). Solving energy challenges through regional cooperation. Energy Sector Management Assistance Programme (ESMAP) briefing note 004/10. Washington, DC.

(a) understanding barriers to regional power trade and be promoted through increased regional cooperation. integration that differ from country to country and region Strong, transparent government commitments to broaden to region; (b) removal of tariff and non-tariff barriers on regional partnerships are a priority for overcoming trade in energy products and services; (c) energy networks these obstacles and promoting subregional initiatives. becoming natural monopolies under public ownership; Cooperation could be accelerated on a subregional level (d) investments required to build capacity; (e) large by engaging major stakeholders, such as government, transaction costs for subregional projects; (f) subsidy issues academia, private sector and technical experts. and lack of sector reforms; (g) sustainability issues and phased approaches; (h) lack of institutional mechanisms To address common challenges, a regional mechanism for sharing mutual gains between countries; (i) lack of could help to more rapidly adapt energy systems technology and institutional matches; (j) weak political to overcome modern and emerging challenges by and technical leadership; (k) trust deficits; (l) difficult streamlining contracts, increasing the availability of business environments for attracting private investors; financing, reducing risk and accelerating the project and (m) governance issues. development of established norms and mutual trust among the countries. Key aspects to move forward include: Each subregion’s energy visions and objectives are expanding supply and ensuring the provision of reliable, clear; however, political commitment is needed in order affordable and modern energy services; unlocking modern to achieve these objectives. Among subregions, social, renewable energy potential and enabling the deployment economic, and environmental benefits are the main drivers of renewables; improving energy efficiency; mainstreaming for increased integration. Obstacles vary by subregion, but marketable technologies that limit the ecological footprint; those that are most commonly recognized include: lack of attracting additional resources from the private sector; some form of trust; energy security concerns; investment improving regional energy governance; promoting energy concerns; lack of harmonized policies and clearly defined connectivity and benefits of common energy systems integration mechanisms; and communication issues operation; and knowledge-pooling within the region to among potential trading partners. These challenges need underpin sustainable development of the energy sector. to be overcome in order to accelerate transition into a ESCAP offers a vital platform from which governments regional energy market. A number of subregions have can work together to harmonize policy and regulations experience with transboundary power trade and the and receive the technical guidance needed to build the successful aspects of those initiatives should be replicated industrial capacity to meet the growing demands of trade in other areas. partners and to compete on an intraregional scale.

The common vision of the sustainable and optimal use In line with global movements, Asia-Pacific countries met of available, affordable, and reliable energy resources can under the Asian and Pacific Energy Forum (APEF), which REGIONAL COOPERATION FOR SUSTAINABLE ENERGY IN ASIA AND THE PACIFIC 61 was organized in Vladivostok, Russian Federation in May (l) Promote expanded production, trade, and use of 2013, with the support of the host, the Government of natural gas as a low-emission fuel; the Russian Federation. APEF was the first ministerial (m) Promote the development of advanced energy conference convened by the United Nations that technologies; focused on energy. Its purpose was to promote regional (n) Develop common infrastructure and harmonized cooperation for enhanced energy security and the energy policies with a view to increasing regional sustainable use of energy in the Asia-Pacific region. economic integration; (o) Promote capacity-building, education and knowledge During APEF, countries adopted the Ministerial Declaration sharing in the field of energy. on Regional Cooperation for Enhanced Energy Security and the Sustainable Use of Energy in Asia and the Pacific: In order to strengthen cooperation, areas of action were Shaping the Future of Sustainable Energy in Asia, which also identified for the five subregions of ESCAP. detailed the Plan of Action on Regional Cooperation for Enhanced Energy Security and the Sustainable Use of In 2014, ESCAP adopted resolution 70/9 in which it Energy in Asia and the Pacific, 2014-2018 to ensure that: endorsed the outcomes of the first Asian and Pacific Energy (a) sustainable energy for all is a reality; (b) enhanced Forum, namely the Ministerial Declaration on Regional energy security is present from regional to household Cooperation for Enhanced Security and Sustainable Use levels; (c) an energy future of equity, diversification, and of Energy in Asia and the Pacific: Shaping the Future of access to all is secured; and (d) the share of cleaner Sustainable Energy in Asia and the Pacific and the Plan 20 energies in the overall energy mix is increased. The of Action on Regional Cooperation for Enhanced Energy Plan of Action offers a highly comprehensive approach Security and the Sustainable Use of Energy in Asia and to energy development, and an expansive set of action the Pacific, 2014-2018, including establishing a review and areas covering access, renewables, and efficiency, as well as assessment mechanism and setting preparations in motion energy investment, trade and technology, among others. for the second APEF in 2018. The outcome documents The scope outlined in the Plan of Action prescribes an of APEF established the 2014-2018 regional agenda integrated approach to improving the sustainability of the targeting enhanced energy security and the sustainable regional energy situation, and sets the foundation from use of energy. The ESCAP secretariat is mandated by which more aligned efforts, cohesive policy frameworks, the aforementioned resolution, to accord priority to the and cooperation mechanisms can emerge. Namely, in implementation of the Plan of Action, to periodically the Plan of Action wherein 15 regional areas for action review the progress leading up to the next APEF in 2018 and areas for subregional action were identified: and to collaborate on regional cooperation. The APEF (a) Establish a platform for facilitating continuous dialogue Implementation Support Mechanism has been developed and cooperation among ESCAP member States on to meet this mandate. The mechanism is solution-driven, enhanced energy security and the sustainable use of with expected outputs in the form of multilateral policy energy; initiatives and solutions that consist of three portals: data (b) Work towards universal access to modern energy and policy information; policy dialogue; and analysis services; and reporting. (c) Advance the development and use of new and renewable sources of energy; The Asia-Pacific region is making notable progress (d) Improve energy efficiency and conservation and through the respective subregional initiatives and across observe sustainability in the supply, distribution, and the APEF 15 areas for action: expanding universal consumption of energy; access to modern energy services, achieving greater (e) Diversify the energy mix and enhance energy security; levels of energy efficiency, ensuring cleaner use of fossil (f) Improve energy trade and investment opportunities fuels, increasing modern renewable energy production, to optimize the development and use of current and forging new energy trade agreements, and improving emerging energy resources; infrastructure and technology (thus addressing energy (g) Improve fiscal policy and financing mechanisms to connectivity issues). On many fronts, the region is leading incentivise and strengthen markets for sustainable global trends. However, progress varies across countries, energy; and accelerating progress requires strengthened policy (h) Improve energy statistics and facilitate data and frameworks, market reforms, increased investment and information sharing; technology uptake, and new means of cooperation among (i) Minimize the environmental impact of the energy sector; member States. Many countries particularly countries with (j) Promote more efficient and cleaner use of oil; special needs, struggle with the short-term objectives of (k) Promote the efficient and clean use of coal; meeting basic energy needs, while others have established 62 REGIONAL COOPERATION FOR SUSTAINABLE ENERGY IN ASIA AND THE PACIFIC longer-term plans to improve the overall sustainability of with more inclusiveness region-wide is essential. Synergy energy supply and use. Given the wealth of regional between subnational experience and expertise may thus experience in addressing the many common challenges be realized, while the scope for energy agenda may be within the energy sector, increasing knowledge exchange extended through incorporation of common values, such offers an opportunity to hasten progress at national and as sustainable energy development principles. regional levels. While most regional institutions — through discussions, agenda setting, and encouragement on voluntary 5. ROLE OF A REGIONAL cooperation — are linked to larger initiatives, such as regional economic cooperation and integration in INSTITUTIONAL MECHANISM their functionality, the Asia-Pacific region is lacking a single overarching institutional mechanism for energy Membership or participation of countries in subregional cooperation. As the global community embarks on initiatives contributes to improved regional and a sustainable development pledge and international international conditions for energy cooperation in several governance embraces a more compliance-oriented and respects: by enhancing access to energy-related data, rules-based approach, a cooperative framework would by providing opportunities for sharing information on generate greater trust among the countries in, and national energy policies, and by providing grounds for create opportunities for, regional energy planning. Such energy-related issues and disputes negotiation. planning would allow for the development of energy systems, for adaptation to contemporary and emerging Vast amounts of human and financial resources are challenges and evolving energy technologies, thereby being used, but achieving the full potential for energy enabling accelerated market-driven scientific collaboration, cooperation in this diverse region still remains a distant energy connectivity, and other issues. goal. Asia-Pacific regional energy cooperation therefore requires a firm commitment to energy transition and According to an ESCAP study on energy connectivity21, regional cooperation to achieve energy and sustainable there is more than enough political support for regional development aspirations. energy connectivity now. There have been many declarations of intentions to promote energy connectivity. It Even though several institutions and mechanisms in the has been proposed that these declarations and intentions Asia-Pacific region, where countries interact routinely be formalized in the shape of an Asia-Pacific energy charter. on energy issues, promote regional cooperation, the This would help to convey the long-term commitment of institutions differ in terms of their principal activities, member Governments and provide confidence for the embodiment of various components of energy and private sector and institutional investors. The objective their functional areas. These include setting market rules, of the charter would be to assure the private sector, such as investment and economic incentives, monitoring institutional investors and other stakeholders about the supply and demand equilibration, coordinating responses region’s collective approach for improving energy security to market failure and price shock, improving energy- and sustainable use of energy. Many important elements related data quality, managing negative externalities, and of such a charter were already agreed by the Asian and other issues that are usually overlapping. The uneven Pacific Energy Forum in 2013. One key to the success nature of countries’ memberships in regional energy- of regional integration would be to define the basis for related institutions reflects geopolitical and geographical fairness, namely what will be considered to be fair and differences, and has implications on the ability of equitable sharing of costs and benefits of energy trade. institutions to function as regional (not local) bodies to enhance energy cooperation in the Asia-Pacific region. Complemented by the lack of harmonized standards, this 6. REGIONAL COOPERATION misalignment at the regional level mostly leads to the inefficiency of investments beyond particular groupings. FOR SUSTAINABLE ENERGY The current relative institutional insufficiency partially reflects on countries’ resistance to approach compliance The Asia-Pacific countries have a diversified energy with collective decisions beyond sovereignty (Kong resources endowment with different energy supply and and Ku, 2015). Despite the fact that overcoming such demand patterns. Energy solutions that have fuelled resistance is not considered an ultimate goal, the countries’ growth in the region over the past few decades are openness to developing an intergovernmental energy no longer compatible with the sustainable development cooperation framework for sustainable development aspirations. In transitioning to a new era of sustainable REGIONAL COOPERATION FOR SUSTAINABLE ENERGY IN ASIA AND THE PACIFIC 63 energy, policymakers across the region face complex air pollution and establishing cross-border energy decisions. Supplies must be secure and affordable, and infrastructure. It is also embedded in the process of they must fill the energy access gap that leaves almost regional economic cooperation and integrations. half a billion people across the region without access to electricity. At the same time, mitigating the local impacts To respond to the challenges ahead, systematic support of energy generation and use is vital for resolving at the national and regional levels are needed. To problems, such as air pollution and the consequences accelerate sustainable energy development through of greenhouse gas emissions. energy transition, a regional cooperation framework for energy system transition that enables governments to However, fossil fuels remain a major part of the regional first identify and subsequently establish clear linkages of energy mix, making up seventy-five per cent of electricity energy policies, strategies, and action plans to the three generation. Unless the region’s countries work together dimensions of sustainable development is necessary. to accelerate the incorporation of sustainable energy Strengthening the role of energy in socioeconomic development principles into their strategies, the business development through national energy policies, strategies, as usual approach will result in a continuation of fossil and action plans is also important. fuel use and associated impacts. Trading hydropower and natural gas-based energy surpluses through cross-border A regional cooperation framework may cover the following power grids that tap renewable energy resources as well components, discussed throughout this publication: as gas pipeline infrastructures can open up enormous • Strengthening government capacity to translate energy opportunities for economic, social, and low-carbon system transition pathways into policies, strategies, and development of a sustainable energy future. programmes by means of regional cooperation, policy dialogues, and sharing best practices and trainings. The energy sector in the Asia-Pacific region is transitioning • Developing energy system transition pathways to slowly, but the measures, pace, and sequencing of ensure the attainment of Sustainable Development reforms being implemented varies depending on Goal 7: to increase substantially the share of renewable national circumstances and development priorities. The energy in energy mix by 2030; to double the rate dynamics and quality of energy transition depends to of improvement in energy efficiency by 2030; and a large extent on national-level actions, but there are to ensure universal access to affordable, reliable, strong global and regional trends that affect domestic sustainable, and modern energy services by 2030. policy. While strong political commitment at the national • Strengthening policy analysis and feasibility studies to level is a prerequisite, enhanced regional cooperation is align energy system transition pathways with regional equally critical to pursue energy diversification, improve connectivity and mapping exercises to determine energy efficiency and ensure universal energy access in the viability of transboundary power trade and the Asia-Pacific region. interconnections. • Developing a regional plan for energy connectivity in the Asia-Pacific region that addresses the missing 7. RECOMMENDATIONS FOR links of ongoing subregional initiatives and focuses REGIONAL COOPERATION FOR on power grid connectivity. • Enhancing the role of science, technology, and SUSTAINABLE ENERGY: NEW innovation in sustainable energy development and ARCHITECTURE FOR REGIONAL energy transition. The Asia-Pacific region has emerged as an engine for clean energy, both as a manufacturing ENERGY GOVERNANCE centre for renewable energy technologies and as the leading region for deployment. Technology Regional cooperation for sustainable energy relies on transfer through South-South cooperation should be the success of the energy transition. It needs sustained highlighted to play a vital role. commitment at national and regional levels through • Developing an institutional arrangement in support clear long-standing policies, incentive and the allocation of the energy system transition pathways, such of increased investments. The inertia of the existing as an Asia-Pacific energy charter that lays out a energy sector is considerable, with its long-lived regional legislative framework to provide private assets and entrenched institutional arrangements. The and institutional investor confidence in the long-term importance of regional energy cooperation is evident commitment of governments. by the transboundary nature of many prominent energy • Promoting public-private dialogues to encourage challenges — improving regional energy security, managing innovative financing and investment partnerships to 64 REGIONAL COOPERATION FOR SUSTAINABLE ENERGY IN ASIA AND THE PACIFIC

help countries achieve their energy system transition ESCAP provides a unique platform to link national and pathway goals and build large transboundary energy regional efforts, forging collaboration that are greater connectivity infrastructures; to promote a conducive than the sum of its parts. As a first important step in environment for attracting private investment in this direction, ESCAP member States established an sustainable energy; and to identify complementary intergovernmental committee on energy. The first session approaches for small-scale energy solutions, including of the Committee on Energy was organized in January at the community level in remote regions. 2017.22 Through the Committee, countries have begun to: • Identify key regional energy solutions, such as fostering 8. THE ROLE OF ESCAP IN a common vision and developing consensus on regional sustainable energy development; FACILITATING REGIONAL • Enhance energy accessibility and affordability; COOPERATION FOR • Diversify energy sources to minimize the impact on the global climate system, pollution, and ecosystem SUSTAINABLE ENERGY damage; • Deliberate on the scope and potential for energy Strengthening regional cooperation on the pathway to integration and identify feasible options, economic sustainable energy in the Asia Pacific region requires the corridors of energy interconnections, and power grids creation of a new architecture for regional energy governance. enhancements based on proper transmission planning This new architecture needs to include measures for and development of regional energy markets; addressing appropriate institutional arrangements to facilitate • Accelerate the uptake of renewables and energy the energy transformation in the region. efficiency, promote regional approaches to energy security and provide modern energy access As the largest and most comprehensive intergovernmental throughout the region to ensure a sustainable energy platform for the region, ESCAP is promoting policy future for all. dialogues, establishing norms, and forging agreements on sustainable energy development — and in particular The Committee also discussed different policy options energy connectivity. ESCAP facilitates effective negotiations and strategies for promoting energy transition at regional between member States based on the emerging levels under the implementation of the 2030 Agenda for architecture for new economic corridors of prosperity and Sustainable Development and Sustainable Development also fosters consensus and legal agreements for regional Goals. connectivity. ESCAP member States are encouraging a move away from segmented approaches on connectivity Furthermore, the second Asian and Pacific Energy Forum, to a more holistic, integrated and sustainable approach the only intergovernmental ministerial energy conference to ensure contiguous and seamless networks through its under the auspices of the United Nations in Asia and multisectoral work on regional economic cooperation and the Pacific, will be held in 2018. It will give Governments, integration. This architecture complements and reinforces policymakers, and experts from member States the the strategic vision of such initiatives, such as the Belt opportunity to work together with private sector and and Road Initiative, the ASEAN Power Grid, the SAARC civil society to formulate a vision for the energy transition Energy Ring and the Asian Super Grid/Gobitec. in the region.

ESCAP provides a platform for consensus building and ESCAP can support a transformative partnership, ensuring catalysing negotiations to help build the energy bridges that regional energy cooperation creates incentives that the Asia-Pacific region needs, while harnessing for accelerated change in the energy sector in order research and project development and creating model to ensure access to affordable, reliable, and modern legal and regulatory agreements for electricity trade energy for all. It is proposed that the outcome of these and regional pricing mechanisms. Regional cooperation various intentions and declarations for energy transition is critical in enabling a transition from fragmented in the region be formalized as the Asia-Pacific energy approaches towards more holistic, integrated, and cooperation framework. This framework will affirm the sustainable energy development. Most importantly, there long-term commitment of member Governments and is a need to strengthen regional energy governance through enhanced regional cooperation give confidence mechanisms by developing an institutional arrangement to private investors, civil society, and financial institutions that gives private and institutional investors’ confidence by developing enabling policies and instruments for in governmental commitment. energy transition. REGIONAL COOPERATION FOR SUSTAINABLE ENERGY IN ASIA AND THE PACIFIC 65

Many of the tools to deliver the energy transition in 15 Members of GMS: Cambodia, Yunnan Province and Guangxi the Asia-Pacific region already exist. Delivering on the Zhuang Autonomous Region of China, Lao People’s Democratic Republic, Myanmar, Thailand, and Viet Nam. energy transition can be done to a large extent with 16 today’s technology. Mobilizing the technologies, business Members of BIMSTEC: Bangladesh; Bhutan; India; Myanmar; Nepal; Sri Lanka and Thailand. models and finance requires the right mix of innovative 17 Members of the Northeast Asian Super Grid / Gobitec project: policies to create the momentum towards a future based are China, Japan, Republic of Korea, Mongolia, and the on sustainable energy. For the countries of the region, Russian Federation. Partners of the project are GEIDCO, the it is clear that fragmented national efforts on sustainable Korea Electric Power Corporation (KEPCO), the Rosseti (Russia energy must give way to coordinated regional responses Federation) and the SoftBank Group (Japan). to deliver the energy transition they need. 18 Turkmenistan-Afghanistan-Pakistan-India. 19 Integrated Research and Action for Development (IRADe) ENDNOTES notes from the experience of linked power grids in India: even if all subsystems suffer from power shortages, there are 1 Members of APEC: Australia; Brunei Darussalam; Canada; Chile; still opportunities to trade electricity as it provides appropriate Chaina; Hong Kong, China; Indonesia; Japan; Republic of Korea; signals for the more economic utilization of existing capacities Malaysia; Mexico; New Zealand; Papua New Guinea; Peru; The and utilizes change in consumption behavior to suit market Philippines; Russia; Singapore; Chinese Taipei; Thailand; The conditions. United States of America; Viet Nam. 20 Ministerial Declaration and Plan of Action on Regional 2 Members of ASEAN: Brunei Darussalam, Cambodia, Indonesia, Cooperation for Enhanced Energy Security and the Sustainable Lao People’s Democratic Republic, Malaysia, Myanmar, Use of Energy in Asia and the Pacific. Adopted at the Asian Philippines, Singapore, Thailand, and Viet Nam. and Pacific Energy Forum 27-30 May 2013 Vladivostok, Russian 3 ASEAN Plan Of Action For Energy Cooperation (APAEC) 2016- Federation. Available from http://www.unescap.org/sites/default/ 2025. Phase I: 2016-2020. See http://www.aseanenergy.org/ files/APEF2013-Ministerial-Declaration-Plan-of-Action.pdf. wp-content/uploads/2015/12/HighRes-APAEC-online-version- 21 See http://www.unescap.org/sites/default/files/Full%20 final.pdf. Report_4.pdf. 4 Lao People’s Democratic Republic, Thailand, Malaysia, Singapore. 22 United Nations Economic and Social Commission for Asia and 5 Trans-ASEAN Gas Pipeline. the Pacific, Report of the Committee on Energy on its first session. Available from http://www.unescap.org/sites/default/ 6 Members of SAARC: Bangladesh, Bhutan, India, Maldives, files/pre-ods/CE_1_8_Report%20of%20the%20Committee%20 Nepal, Pakistan, and Sri Lanka. on%20Energy%20on%20its%20first%20session.pdf. 7 Members of CAREC: Afghanistan, Azerbaijan, China, Georgia, Kazakhstan, Kyrgyzstan, Mongolia, Pakistan, Tajikistan, Turkmenistan, and Uzbekistan. 8 Document available on Asia Pacific Energy Portal. Available from asiapacificenergy.org. 9 Members of SCO are: Kazakhstan, China, Kyrgyzstan, the Russian Federation, Tajikistan, and the Uzbekistan. 10 Development Strategy of the Shanghai Cooperation Organization until 2025. Document available from http://eng. sectsco.org/load/200162/. 11 Members of SPC are: American Samoa; Australia; Cook Islands; Federated States of Micronesia; Fiji; France; Guam; Kiribat;, Marshall Islands; Nauru; New Zealand; Niue; Northern Mariana Islands; New Caledonia; Palau; Papua New Guinea; Pitcairn; French Polynesia; Samoa; Solomon Islands; Tokelau; Tonga; Tuvalu; United States of America; Vanuatu; Wallis and Futuna. 12 Pacific Community Strategic Plan 2016-2020 available from http://www.spc.int/wp-content/uploads/2016/strategic- Plan-2016-2020.pdf. 13 Members of SPREP: American Samoa; Australia; Commonwealth of the Northern Mariana Islands; Cook Islands; Federated States of Micronesia; Fiji; France; French Polynesia; Guam; Kiribati; Marshall Islands; Nauru; New Caledonia; New Zealand; Niue; Palau; Papua New Guinea; Samoa; Solomon Islands; Tokelau; Tonga; Tuvalu; United Kingdom; United States of America; Vanuatu; Wallis and Futuna. 14 The Secretariat of the Pacific Regional Environment Pro- gramme. Strategic Action Plan 2011-2015. Available from http://www.sprep.org/att/publication/000921_SPREPStrategic Plan2011_2015.pdf. 66 REGIONAL COOPERATION FOR SUSTAINABLE ENERGY IN ASIA AND THE PACIFIC

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